STATE OF NEW YORK
________________________________________________________________________
1223--A
2015-2016 Regular Sessions
IN SENATE
January 9, 2015
___________
Introduced by Sens. CARLUCCI, KLEIN, AVELLA, SAVINO, VALESKY -- read
twice and ordered printed, and when printed to be committed to the
Committee on Higher Education -- recommitted to the Committee on High-
er Education in accordance with Senate Rule 6, sec. 8 -- committee
discharged, bill amended, ordered reprinted as amended and recommitted
to said committee
AN ACT to amend the education law, the state finance law, the civil
practice law and rules and the tax law, in relation to establishing
the New York state pre-paid tuition plan
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. The education law is amended by adding a new section 355-d
2 to read as follows:
3 § 355-d. "New York state pre-paid tuition plan". 1. Definitions. For
4 the purposes of this section, the following terms shall have the follow-
5 ing meanings:
6 a. "Account" or "pre-paid tuition account" shall mean an individual
7 pre-paid tuition account established in accordance with the provisions
8 of this section.
9 b. "Account owner" shall mean a person who enters into a pre-paid
10 tuition agreement pursuant to the provisions of this article, including
11 a person who enters into such an agreement as a fiduciary or agent on
12 behalf of a trust, estate, partnership, association, company or corpo-
13 ration. The account owner may also be the designated beneficiary of the
14 account.
15 c. "City university" shall mean the city university of New York.
16 d. "Comptroller" shall mean the state comptroller.
17 e. "Designated beneficiary" shall mean, with respect to an account or
18 accounts, the individual designated as the individual whose tuition
19 expenses are expected to be paid from the account or accounts.
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD03418-02-6
S. 1223--A 2
1 f. "Eligible educational institution" shall mean any institution of
2 higher education defined as an eligible educational institution in
3 section 529(e)(5) of the Internal Revenue Code of 1986, as amended.
4 g. "Financial organization" shall mean an organization authorized to
5 do business in the state and (i) which is an authorized fiduciary to act
6 as a trustee pursuant to the provisions of an act of congress entitled
7 "Employee Retirement Income Security Act of 1974" as such provisions may
8 be amended from time to time, or an insurance company; and (ii) (A) is
9 licensed or chartered by the department of financial services, (B) is
10 chartered by an agency of the federal government, (C) is subject to the
11 jurisdiction and regulation of the securities and exchange commission of
12 the federal government, or (D) is any other entity otherwise authorized
13 to act in this state as a trustee pursuant to the provisions of an act
14 of congress entitled "Employee Retirement Income Security Act of 1974"
15 as such provisions may be amended from time to time.
16 h. "Member of family" shall mean a family member as defined in section
17 529 of the Internal Revenue Code of 1986, as amended.
18 i. "Nonqualified withdrawal" shall mean a withdrawal from an account,
19 but shall not mean:
20 (i) a qualified withdrawal; (ii) a withdrawal made as the result of
21 the death or disability of the designated beneficiary of an account; or
22 (iii) a withdrawal made on the account of a scholarship.
23 j. "Plan" shall mean the New York state pre-paid tuition plan estab-
24 lished pursuant to this section.
25 k. "Plan manager" shall mean a financial organization selected by the
26 comptroller to act as a depository and manager of the plan.
27 l. "Qualified withdrawal" shall mean a withdrawal from an account to
28 pay the qualified tuition expenses of the designated beneficiary.
29 m. "State university" shall mean the state university of New York.
30 n. "Tuition" shall mean any mandatory charges imposed by an eligible
31 educational institution for attendance for an academic year as a condi-
32 tion of enrollment. Such term shall not include laboratory fees, room
33 and board, or other similar fees and charges.
34 o. "Tuition savings agreement" shall mean an agreement between the
35 comptroller or a financial organization and an account owner.
36 2. Powers and duties of the comptroller. The comptroller shall admin-
37 ister the plan and shall develop and implement programs for the prepay-
38 ment of undergraduate tuition, at a fixed, guaranteed level for applica-
39 tion at any two-year or four-year eligible educational institution as
40 defined in section 529 of the Internal Revenue Code of 1986, as amended,
41 or other applicable federal law. In addition, the comptroller shall have
42 the power and duty to:
43 a. develop and implement the plan in a manner consistent with the
44 provisions of this section through rules and regulations established in
45 accordance with the state administrative procedure act;
46 b. make arrangements with the state university, city university and
47 any eligible educational institution located within the state which
48 chooses to participate, to fulfill obligations under prepaid tuition
49 contracts for two-year or four-year degree programs, including, but not
50 limited to, payment from the plan of the then actual in-state undergrad-
51 uate tuition cost on behalf of a qualified beneficiary of a prepaid
52 tuition contract to the institution in which such beneficiary is admit-
53 ted and enrolled, and application of such benefits towards graduate-lev-
54 el tuition and towards tuition costs at such eligible educational insti-
55 tutions, as that term is defined in 26 U.S.C. § 529 or any other
56 applicable section of the Internal Revenue Code of 1986, as amended, as
S. 1223--A 3
1 determined by the comptroller in his or her sole discretion. Such
2 arrangements must include plans that allow an account owner to enter
3 into contracts in which he or she can purchase tuition in installments
4 equal to the cost of semesters as a full time student, but can also
5 include plans that would allow for the prepayment of tuition for tuition
6 credit hours;
7 c. engage the services of consultants on a contract basis for render-
8 ing professional and technical assistance and advice;
9 d. seek rulings and other guidance from the United States department
10 of Treasury and the Internal Revenue Service relating to the program;
11 e. make changes to the plan required for the participants to obtain
12 the federal income tax benefits or treatment provided by section 529 of
13 the Internal Revenue Code of 1986, as amended, or any similar successor
14 legislation;
15 f. charge, impose and collect administrative fees and service charges
16 in connection with any agreement, contract or transaction relating to
17 the plan;
18 g. develop marketing plans and promotion material;
19 h. establish the methods by which the funds held in such accounts be
20 disbursed;
21 i. establish the method by which funds shall be allocated to pay for
22 administrative costs; and
23 j. do all things necessary and proper to carry out the purposes of
24 this section.
25 3. Plan requirements. Every pre-paid tuition account shall comply with
26 the provisions of this section.
27 a. A pre-paid tuition account may be opened by any person who desires
28 to enter into a contract for pre-payment of tuition expenses at an
29 institution of the state university, the city university or any partic-
30 ipating eligible educational institution. An account owner may designate
31 another person as successor owner of the account in the event of the
32 death of the original account owner. Such person who opens an account or
33 any successor owner shall be considered the account owner.
34 b. An application for such account shall be in the form prescribed by
35 the comptroller and contain the following:
36 (i) the name, address and social security number or employer identifi-
37 cation number of the account owner;
38 (ii) the designation of a designated beneficiary;
39 (iii) the name, address and social security number of the designated
40 beneficiary; and
41 (iv) such other information as the comptroller may require.
42 c. The comptroller may establish a nominal fee for such application.
43 d. Any person, including the account owner, may make contributions to
44 an account after the account is opened.
45 e. Contributions to accounts may be made only in cash.
46 f. Four years must elapse between the establishment of a pre-paid
47 tuition account and the time the first qualified withdrawal is made for
48 the payment of tuition expenses.
49 g. An account owner may withdraw all or part of the balance from an
50 account on sixty days notice or such shorter period as may be authorized
51 under rules governing the plan. Such rules shall include provisions that
52 will generally enable the determination as to whether a withdrawal is a
53 nonqualified withdrawal or a qualified withdrawal.
54 h. An account owner may change the designated beneficiary of an
55 account to an individual who is a member of the family of the prior
S. 1223--A 4
1 designated beneficiary in accordance with procedures established by the
2 comptroller.
3 i. An account owner may transfer all or a portion of an account to
4 another family tuition account, the subsequent designated beneficiary of
5 which is a member of the family as defined in section 529 of the Inter-
6 nal Revenue Code of 1986, as amended.
7 j. The plan shall provide separate accounting for each designated
8 beneficiary.
9 k. No account owner or designated beneficiary of any account shall be
10 permitted to direct the investment of any contributions to an account or
11 the earnings thereon.
12 l. Neither an account owner nor a designated beneficiary shall use an
13 interest in an account as security for a loan. Any pledge of an interest
14 in an account shall be of no force and effect.
15 m. (i) If there is any distribution from an account to any individual
16 or for the benefit of any individual during a calendar year, such
17 distribution shall be reported to the Internal Revenue Service and the
18 account owner, the designated beneficiary or the distributee to the
19 extent required by federal law or regulation.
20 (ii) Statements shall be provided to each account owner at least once
21 each year within sixty days after the end of the twelve month period to
22 which they relate. The statement shall identify the contributions made
23 during a preceding twelve month period, the total contributions made to
24 the account through the end of the period, the value of the account at
25 the end of such period, distributions made during such period and any
26 other information that the comptroller shall require to be reported to
27 the account owner.
28 (iii) Statements and information relating to accounts shall be
29 prepared and filed to the extent required by federal and state tax law.
30 n. (i) A local government or organization described in section
31 501(c)(3) of the Internal Revenue Code of 1986, as amended, may open and
32 become the account owner of an account to fund scholarships for persons
33 whose identity will be determined upon disbursement.
34 (ii) In the case of any account opened pursuant to paragraph a of this
35 subdivision the requirement set forth in this subdivision that a desig-
36 nated beneficiary be designated when an account is opened shall not
37 apply and each individual who receives an interest in such account as a
38 scholarship shall be treated as a designated beneficiary with respect to
39 such interest.
40 o. An annual fee may be imposed upon the account owner for the mainte-
41 nance of the account.
42 p. The plan shall disclose the following information in writing to
43 each account owner and prospective account owner of a pre-paid tuition
44 account:
45 (i) the terms and conditions for purchasing a pre-paid tuition
46 account;
47 (ii) any restrictions on the substitution of beneficiaries;
48 (iii) the person or entity entitled to terminate the tuition pre-pay-
49 ment agreement;
50 (iv) the period of time during which a beneficiary may receive bene-
51 fits under the tuition pre-payment agreement;
52 (v) the terms and conditions under which money may be wholly or
53 partially withdrawn from the plan, including, but not limited to, any
54 reasonable charges and fees that may be imposed for withdrawal;
55 (vi) the probable tax consequences associated with contributions to
56 and distributions from accounts; and
S. 1223--A 5
1 (vii) all other right and obligations pursuant to pre-paid tuition
2 agreements, and any other terms, conditions and provisions deemed neces-
3 sary and appropriate by the comptroller pursuant to this subdivision.
4 q. Pre-paid tuition savings agreements shall be subject to section
5 fourteen-c of the banking law and the "truth-in-savings" regulations
6 promulgated thereunder.
7 r. Nothing in this article or in any pre-paid tuition savings agree-
8 ment entered into pursuant to this article shall be construed as a guar-
9 antee by the state or any college that a beneficiary will be admitted to
10 a college or university, or, upon admission to a college will be permit-
11 ted to continue to attend or will receive a degree from a college or
12 university.
13 4. State guarantee. a. Nothing in this section shall establish or be
14 deemed to establish any obligation of the state, the comptroller or any
15 agency or instrumentality of the state to guarantee any benefits to any
16 account owner or designated beneficiary.
17 b. Notwithstanding the provisions of subdivision one of this section,
18 in order to ensure that the plan is able to meet its obligations, the
19 governor shall include in the budget submitted pursuant to section twen-
20 ty-two of the state finance law, an appropriation sufficient for the
21 purpose of ensuring that the plan can meet its obligations. Any sums
22 appropriated for such purpose shall be transferred to the plan. All
23 amounts paid into the plan pursuant to this subdivision shall constitute
24 and be accounted for as advances by the state to the plan and, subject
25 to the rights of the plan's contract holders, shall be repaid to the
26 state without interest from available operating revenue of the plan in
27 excess of amounts required for the payment of the obligations of the
28 plan. As used in this section, "obligations of the plan" means amounts
29 required for the payment of contract benefits or other obligations of
30 the plan, the maintenance of the plan, and operating expenses for the
31 current fiscal year.
32 § 2. The state finance law is amended by adding a new section 78-c to
33 read as follows:
34 § 78-c. New York state pre-paid tuition plan fund. 1. There is hereby
35 established in the sole custody of the state comptroller a special fund
36 to be known as the New York state pre-paid tuition plan fund. All
37 payments from such fund shall be made in accordance with section three
38 hundred fifty-five-d of the education law.
39 2. (a) The comptroller shall invest the assets of the fund in invest-
40 ments authorized by article four-A of the retirement and social security
41 law, provided however, that:
42 (i) the provisions of paragraph (a) of subdivision two of section one
43 hundred seventy-seven of the retirement and social security law shall
44 not apply except for subparagraph (ii) of such paragraph; and (ii)
45 notwithstanding the provisions of subdivision seven of section one
46 hundred seventy-seven of the retirement and social security law or any
47 other law to the contrary, the assets of the fund may be invested in any
48 funding agreement issued in accordance with section three thousand two
49 hundred twenty-two of the insurance law by a domestic life insurance
50 company or a foreign life insurance company doing business in this
51 state, subject to the following:
52 (1) such a funding agreement may provide for a guaranteed minimum rate
53 of return;
54 (2) such a funding agreement may be allocated as either a separate
55 account or a general account of the issuer, as the comptroller may
56 decide;
S. 1223--A 6
1 (3) total investments of the fund pursuant to this paragraph in any
2 funding agreements issued by a single life insurance company which are
3 allocated as a general account of the issuer shall not, in the aggre-
4 gate, exceed three hundred fifty million dollars; and
5 (4) no assets of the fund shall be invested in any such funding agree-
6 ment unless, at the time of such investment, the general obligations or
7 financial strength of the issuer have received either the highest or
8 second highest rating by two nationally recognized rating services or by
9 one nationally recognized rating service in the event that only one such
10 service rates such obligations.
11 (b) Fund assets shall be kept separate and shall not be commingled
12 with other assets. The comptroller may enter into contracts to provide
13 for investment advice and management, custodial services and other
14 professional services for the administration and investment of the plan.
15 Administrative fees, costs and expenses, including investment fees and
16 expenses, shall be paid from the assets of the fund.
17 3. The comptroller shall provide for the administration of the trust
18 fund, including maintaining participant records and accounts, and
19 providing annual audited reports. The comptroller may enter into
20 contracts to provide administrative services and reporting.
21 § 3. Section 5205 of the civil practice law and rules is amended by
22 adding a new subdivision (p) to read as follows:
23 (p) Exemption for New York state pre-paid tuition plan monies. Monies
24 in an account created pursuant to section three hundred fifty-five-d of
25 the education law are exempt from application to the satisfaction of a
26 money judgment as follows:
27 1. one hundred percent of monies in an account in connection with a
28 pre-paid tuition plan established pursuant to such article is exempt;
29 and
30 2. one hundred percent of monies in an account is exempt where the
31 judgment debtor is the account owner or designated beneficiary of such
32 account.
33 For the purposes of this subdivision, the terms "account owner" and
34 "designated beneficiary" shall have the meanings ascribed to them in
35 article fourteen-A of the education law.
36 § 4. Paragraph 34 of subsection (b) of section 612 of the tax law, as
37 amended by chapter 535 of the laws of 2000, subparagraph (B) as amended
38 by chapter 593 of the laws of 2003, is amended to read as follows:
39 (34) (A) Excess distributions received during the taxable year by a
40 distributee of a family tuition account established under the New York
41 state college choice tuition savings program provided for under article
42 fourteen-A of the education law, or of a pre-paid tuition account estab-
43 lished pursuant to section three hundred fifty-five-d of the education
44 law, to the extent such excess distributions are deemed attributable to
45 deductible contributions under paragraph thirty-two of subsection (c) of
46 this section.
47 (B) (i) The term "excess distributions" means distributions which are
48 not
49 (I) qualified withdrawals within the meaning of subdivision nine of
50 section six hundred ninety-five-b or paragraph l of subdivision one of
51 section three hundred fifty-five-d of the education law;
52 (II) withdrawals made as a result of the death or disability of the
53 designated beneficiary within the meaning of subdivision ten of section
54 six hundred ninety-five-b or paragraph i of subdivision one of section
55 three hundred fifty-five-d of such law; or
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1 (III) transfers described in paragraph b of subdivision six of section
2 six hundred ninety-five-e of such law.
3 (ii) Excess distributions shall be deemed attributable to deductible
4 contributions to the extent the amount of any such excess distribution,
5 when added to all previous excess distributions from the account,
6 exceeds the aggregate of all nondeductible contributions to the account.
7 § 5. Paragraphs 32 and 33 of subsection (c) of section 612 of the tax
8 law, paragraph 32 as amended by chapter 81 of the laws of 2008 and para-
9 graph 33 as added by chapter 546 of the laws of 1997, are amended to
10 read as follows:
11 (32) Contributions made during the taxable year by an account owner to
12 one or more family tuition accounts established under the New York state
13 college choice tuition savings program provided for under article four-
14 teen-A, or to a pre-paid tuition account pursuant to section three
15 hundred fifty-five-d of the education law, to the extent not deductible
16 or eligible for credit for federal income tax purposes, provided, howev-
17 er, the exclusion provided for in this paragraph shall not exceed [five]
18 ten thousand dollars for an individual or head of household, and for
19 married couples who file joint tax returns, shall not exceed [ten] twen-
20 ty thousand dollars; provided, further, that such exclusion shall be
21 available only to the account owner and not to any other person.
22 (33) Distributions from a family tuition account established under the
23 New York state college choice tuition savings program provided for under
24 article fourteen-A, or from a pre-paid tuition account pursuant to
25 section three hundred fifty-five-d of the education law, to the extent
26 includible in gross income for federal income tax purposes.
27 § 6. This act shall take effect immediately and shall apply to taxable
28 years commencing after December 31, 2016.
