House Bill 4487
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Florida House of Representatives - 1998 HB 4487
By Representatives Fasano, Boyd, Wise, K. Pruitt, Edwards,
Melvin, Posey, Lawson and Kelly
1 A bill to be entitled
2 An act relating to postsecondary education;
3 creating s. 240.555, F.S.; establishing the
4 Florida Higher Education Savings Program;
5 providing intent; providing definitions;
6 providing for establishment and administration
7 of the Florida Higher Education Savings Trust;
8 providing for participation agreements;
9 providing for investment of funds in the trust;
10 providing for payment of higher education
11 expenses from the trust; providing for
12 withdrawals from the fund; providing penalties;
13 requiring annual reporting; providing for
14 exemption from state and local taxes; providing
15 a state pledge; providing applicability with
16 respect to enrollment in institutions of higher
17 education; providing that moneys in the trust
18 are not assets for financial aid needs testing;
19 providing for liberal construction; requiring
20 certain legal opinions prior to implementation;
21 providing for startup funding; providing
22 severability; providing an effective date.
23
24 Be It Enacted by the Legislature of the State of Florida:
25
26 Section 1. Section 240.555, Florida Statutes, is
27 created to read:
28 240.555 Florida Higher Education Savings Program.--
29 (1) The Legislature recognizes that affordability and
30 accessibility of higher education is essential to the welfare
31 and well-being of the residents of the state and is a critical
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1 state interest. Promoting and enhancing a variety of
2 opportunities to attend postsecondary institutions serves a
3 legitimate public purpose. Accordingly, as a supplement and
4 option to existing programs that promote educational
5 opportunities to attend postsecondary institutions such as the
6 Florida Prepaid Postsecondary Education Expense Program, it is
7 the intent of the Legislature to establish a state higher
8 education trust program to allow persons to make contributions
9 to a trust account that is established for the purpose of
10 meeting some or all of the qualified higher education expenses
11 of a designated beneficiary, consistent with federal law
12 authorizing such programs. It is the intent of the Legislature
13 that this trust program, which does not guarantee tuition to
14 any institution, provide a choice to persons who determine
15 that the overall educational needs of their families are best
16 suited to a savings program, those who may wish to save to
17 meet postsecondary educational needs beyond the traditional
18 4-year curriculum, or those whose financial planning
19 circumstances may better fit a savings plan. It is further the
20 intent of the Legislature to privatize the overall
21 administration of such a program to allow for the timely,
22 efficient, and cost-effective conduct of the program.
23 (2) As used in this section:
24 (a) "Commissioner" means the Commissioner of
25 Education.
26 (b) "Depositor" means any person making a deposit,
27 payment, contribution, gift, or other expenditure to the trust
28 pursuant to a participation agreement.
29 (c) "Designated beneficiary" means:
30 1. Any individual state resident originally designated
31 in the participation agreement;
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1 2. Any individual defined in s. 2032A(e)(2) of the
2 Internal Revenue Code;
3 3. Any individual receiving a scholarship from
4 interests in the trust purchased by a state or local
5 government or an organization described in s. 501(c)(3) of the
6 Internal Revenue Code and qualified under s. 529 of the
7 Internal Revenue Code; or
8 4. Any other individual enrolled in the trust who
9 qualifies as a designated beneficiary under s. 529 of the
10 Internal Revenue Code.
11 (d) "Eligible educational institution" means an
12 institution of higher education qualifying under s. 529 of the
13 Internal Revenue Code as an eligible educational institution.
14 (e) "Internal Revenue Code" means the Internal Revenue
15 Code of 1986, or any subsequent corresponding internal revenue
16 code of the United States, as amended from time to time.
17 (f) "Participation agreement" means an agreement
18 between the trust and a depositor for participation in a
19 savings plan for a designated beneficiary.
20 (g) "Program" means the Florida Higher Education
21 Savings Program.
22 (h) "Qualified higher education expenses" means
23 tuition, room and board, fees, books, supplies, and equipment
24 required for the enrollment or attendance of a designated
25 beneficiary at an eligible educational institution, including
26 undergraduate and graduate schools, and any other higher
27 education expenses that may be permitted under s. 529 of the
28 Internal Revenue Code.
29 (i) "Trust" means the Florida Higher Education Savings
30 Trust.
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1 (3)(a) There is created and established within the
2 Office of the Commissioner of Education the Florida Higher
3 Education Savings Trust to promote and enhance the
4 affordability and accessibility of higher education in the
5 state. The trust shall constitute an instrumentality of the
6 state and shall perform essential governmental functions, as
7 provided in this section. The trust shall receive and hold all
8 payments, deposits, and contributions intended for the trust,
9 as well as gifts, bequests, endowments, and federal, state, or
10 local grants and any other public or private source of funds
11 and all earnings, until disbursed in accordance with
12 subsection (7) or subsection (8).
13 (b) The amounts on deposit in the trust shall not
14 constitute property of the state, and the trust shall not be
15 construed to be a department, institution, or agency of the
16 state. Amounts on deposit in the trust shall not be commingled
17 with state funds, and the state shall have no claim to or
18 against, or interest in, such funds, except as provided by
19 contract as set forth in subsection (16). Any contract entered
20 into by or any obligation of the trust shall not constitute a
21 debt or obligation of the state. The state shall have no
22 obligation to any designated beneficiary or any other person
23 on account of the trust, and all amounts obligated to be paid
24 from the trust shall be limited to amounts available for such
25 obligation on deposit in the trust. The amounts on deposit in
26 the trust may only be disbursed in accordance with the
27 provisions of this section. Each participation agreement shall
28 clearly state that the contract is not a debt or obligation of
29 the state, the Department of Education, or any eligible
30 educational institution.
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1 (c) The depositor retains ownership of all amounts on
2 deposit in his or her account with the trust up to the date of
3 distribution to a designated beneficiary. Earnings derived
4 from investment of the contributions are considered to be held
5 in trust in the same manner as contributions, except as
6 applied for purposes of the designated beneficiary and for
7 purposes of maintaining and administering the trust and the
8 program and repaying any advancement of funds as provided in
9 this section. Nothing in this paragraph or in any other
10 provision of this section shall permit any interest in the
11 trust to be used as security for a loan by a designated
12 beneficiary or depositor.
13 (d) All amounts attributable to penalties shall be
14 used for purposes of the trust, and other amounts received
15 other than contributions shall be considered properties of the
16 trust. Proceeds from penalties shall remain with the trust and
17 may be used for any costs or purposes of the trust.
18 (e) The trust may not receive deposits in any form
19 other than cash. No depositor or designated beneficiary may
20 direct the investment of any contributions or amounts held in
21 the trust other than the specific fund options provided for by
22 the trust, if any.
23 (f) The trust shall continue in existence as long as
24 it holds any deposits or has any obligations and until its
25 existence is terminated by law. Upon termination of the trust,
26 any unclaimed assets in the trust shall revert to the state in
27 accordance with general law regarding unclaimed property.
28 (4)(a) A depositor must designate the name, address,
29 date of birth, and social security number for the depositor
30 and the designated beneficiary who will attend an eligible
31 educational institution. For newborns, the social security
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1 number must be provided within 6 months after the date the
2 participation agreement is submitted. Distributions from
3 accounts that lack a valid social security number may be
4 subject to penalties and withholding taxes at the time of
5 distribution.
6 (b) Participation agreements may be freely amended
7 throughout their terms in order to enable depositors to
8 increase or decrease the level of participation, change
9 designated beneficiaries, and carry out similar matters
10 permitted by this section and the Internal Revenue Code.
11 (c) Deposits to the trust by depositors may only be in
12 cash. Depositors may contribute in a lump sum, in
13 installments, or, when and if available, through electronic
14 funds transfer or employer payroll deductions.
15 (d) Depositors shall be required to demonstrate to the
16 trust the need for account contributions in excess of the
17 projected costs of higher education for a designated
18 beneficiary of that age for an average national private
19 college.
20 (e) If it is determined that the depositor or the
21 designated beneficiary has made any material misrepresentation
22 in the application for a participation agreement or in any
23 communication with the trust regarding the program, especially
24 withdrawal or distribution of funds therefrom, then the
25 account may be involuntarily liquidated by the trust. If the
26 account is so liquidated, the depositor shall be entitled to a
27 refund, subject to a 15-percent penalty or such lower amount
28 as provided by the Internal Revenue Code.
29 (5)(a) To provide for regulation and administration of
30 the trust, there is established the Florida Higher Education
31 Savings Program. The program shall be administered by the
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1 Commissioner of Education; however, the commissioner shall, to
2 the maximum extent possible, let one or more contracts for the
3 promotion, management, administration, maintenance,
4 accounting, investment, receipt, and disbursement of amounts
5 in the trust. Such contract or contracts shall be
6 competitively procured, unless the commissioner finds that in
7 order to facilitate the startup of the trust and program it is
8 in the best interests of the state to negotiate directly with
9 one or more providers of such services. Such contract or
10 contracts shall be for a term determined by the commissioner.
11 It is the intent of the Legislature that the administration of
12 the program be self-funded, self-sustaining, and privatized to
13 the maximum extent possible.
14 (b) The commissioner, on behalf and for the benefit of
15 the trust, may:
16 1. Receive and invest moneys in the trust in any
17 instruments, obligations, securities, or property in
18 accordance with subsection (6).
19 2. Establish consistent provisions for each
20 participation agreement, bulk deposit, coupon, or installment
21 payment, including, but not limited to:
22 a. The method of payment into the trust by payroll
23 deduction, transfer from a bank account, or other means.
24 b. The termination, withdrawal, or transfer of
25 payments under the trust, including transfers to or from a
26 qualified tuition program established by another state
27 pursuant to s. 529 of the Internal Revenue Code.
28 c. Penalties for distributions not used or made in
29 accordance with s. 529 of the Internal Revenue Code.
30 d. The requirements for changing the identity of the
31 designated beneficiary.
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1 e. Any charges or fees in connection with the
2 administration of the trust.
3 f. Adequate safeguards to prevent contributions on
4 behalf of a designated beneficiary in excess of those
5 necessary to provide for the qualified higher education
6 expenses of the beneficiary.
7 3. Enter into one or more contractual agreements,
8 including, but not limited to, contracts for legal, actuarial,
9 accounting, financial, custodial, advisory, management,
10 administrative, advertising, marketing, and consulting
11 services for the trust, and pay for such services from the
12 gains and earnings of the trust or from funds advanced as
13 described in subsection (16). Any such contractual agreement
14 shall be with an entity or entities experienced in managing or
15 providing the services called for in the contract.
16 4. Procure insurance in connection with the trust's
17 property, assets, or activities or in connection with deposits
18 in or contributions to the trust.
19 5. Apply for, accept, and expend gifts, grants, or
20 donations from public or private sources to enable the trust
21 to carry out its objectives.
22 6. Adopt rules in accordance with chapter 120 for
23 purposes of this section.
24 7. Sue and be sued.
25 8. Maintain separate accounts for each designated
26 beneficiary and establish other accounts within the trust as
27 necessary to appropriately account for all funds held in the
28 trust.
29 9. Hire necessary staff and lease or purchase
30 necessary office space or equipment and other services
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1 necessary to carry out the purposes of this program, the costs
2 of which are to be paid as provided in subsection (16).
3 10. Take any other action necessary to carry out the
4 purposes of this section and incidental to the duties imposed
5 on the commissioner.
6 (6)(a) The commissioner shall invest the amounts on
7 deposit in the trust in a manner reasonable and appropriate to
8 achieve the objectives of the trust, exercising the discretion
9 and care of a prudent person in similar circumstances with
10 similar objectives. The commissioner shall give due
11 consideration to rate of return, risk, term of maturity,
12 diversification of total portfolio within the trust,
13 liquidity, projected disbursements and expenditures, and
14 expected payments, deposits, contributions, and gifts to be
15 received. Moneys in the trust are exempt from the investment
16 requirements of s. 18.10, but are subject to the investment
17 restrictions contained in s. 215.472. Consistent with the
18 legislative intent to privatize the administration of the
19 program and the trust, the commissioner shall, to the maximum
20 extent possible, contract with one or more qualified,
21 experienced entities to make these investment decisions, and
22 such entities shall be required to exercise the same degree of
23 discretion, care, and consideration described in this
24 paragraph. The commissioner shall not require the trust to
25 invest directly in obligations of the state or any political
26 subdivision of the state or in any investment or other fund
27 administered by the state. The assets of the trust shall be
28 continuously invested and reinvested in a manner consistent
29 with the purposes of the trust, expended on expenses incurred
30 by the operation and management of the trust and program, or
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1 refunded to the depositor or designated beneficiary on the
2 conditions provided in the participation agreement.
3 (b) Participation in the trust and the offering and
4 solicitation of the trust are exempt from state securities
5 law. In addition, implementation of this program shall not
6 begin until the commissioner has obtained, in addition to the
7 opinion required in subsection (15), written advice of counsel
8 that the trust and the offering of participation in the trust
9 are not subject to federal securities laws.
10 (7)(a) Before authorizing the withdrawal of any moneys
11 from the trust for the payment of qualified higher education
12 expenses of a designated beneficiary, the trust must be
13 advised of the qualified educational institution the
14 designated beneficiary will attend and the anticipated date of
15 enrollment. The trust shall then require information from the
16 selected institution reflecting the designated beneficiary's
17 enrollment at such institution.
18 (b) Upon receipt of all required documentation, the
19 trust shall make distributions by check to the specified
20 institution and the designated beneficiary jointly.
21 (c) Before authorizing withdrawals from the trust for
22 payment of off-campus room and board and other allowed
23 qualified higher education expenses, the trust shall require
24 information from the designated beneficiary reflecting the
25 expenses being submitted. If a designated beneficiary resides
26 off campus, the trust shall pay directly to the designated
27 beneficiary an amount equal to the cost of lodging and meal
28 tickets for an academic period as established by such
29 institution for on-campus students; provided, however, that in
30 no event may any disbursement exceed any maximum amount
31 established by the Internal Revenue Code. Funds may only be
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1 disbursed to a designated beneficiary for room and board if
2 the designated beneficiary is enrolled at an eligible
3 educational institution at least half time, or such other
4 enrollment requirement as may be imposed by the Internal
5 Revenue Code or Internal Revenue Service regulations.
6 (d) Each distribution shall consist of a pro rata
7 distribution of contributions and earnings and shall be in the
8 manner prescribed by the commissioner, consistent with the
9 regulations of the United States Treasury Department or
10 Internal Revenue Service.
11 (e) All distributions made during a taxable year shall
12 be treated as one distribution.
13 (8)(a) A depositor may withdraw funds from the trust.
14 The depositor shall be entitled to the return of the principal
15 amount of all contributions made by the depositor, plus actual
16 investment earnings or minus actual investment losses on the
17 contributions, less a penalty set forth in paragraph (c).
18 (b) Notwithstanding paragraph (a), a penalty may not
19 be levied if a depositor requests a withdrawal of funds from
20 the trust due to any of the following circumstances:
21 1. Death of the beneficiary.
22 2. Permanent disability or mental incapacity of the
23 beneficiary.
24 3. Scholarship, allowance, or payment received by the
25 beneficiary to the extent that the amount of the refund does
26 not exceed the amount of the scholarship, allowance, or
27 payment in accordance with federal law.
28 4. Other circumstances permitted by the Internal
29 Revenue Code or Internal Revenue Service regulations.
30 (c) If a depositor requests a withdrawal or refund of
31 funds contributed to the trust for any cause other than one
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1 listed in paragraph (b), there shall be imposed a penalty of
2 15 percent of the earnings of the account and any applicable
3 taxes, or such lower penalty as may be prescribed by the
4 Internal Revenue Code or Internal Revenue Service regulations.
5 Earnings shall be calculated as the total account value less
6 the aggregate contributions.
7 (d) If an account of a designated beneficiary remains
8 unused for a period of 5 consecutive years after the
9 designated beneficiary first becomes eligible to attend an
10 eligible educational institution, the balance of the account,
11 after notice to the depositor, shall be declared unclaimed and
12 abandoned property and subject to disposition as such under
13 chapter 717. Time expended by a designated beneficiary as an
14 active duty member of any of the Armed Services of the United
15 States shall be added to this period.
16 (9) On or before September 30 each year, the
17 commissioner shall cause to be published a report on the
18 operations of the trust in the form of an audited financial
19 statement, including the receipts, disbursements, assets,
20 investments, liabilities, and administrative costs of the
21 trust for the prior fiscal year. The first report shall be due
22 September 30, 1999. The commissioner shall submit a copy of
23 the report to the Governor, the President of the Senate, the
24 Speaker of the House of Representatives, and the minority
25 leaders of the House and Senate and shall make the report
26 available to each depositor and designated beneficiary. In
27 addition, the accounts of the trust shall be subject to annual
28 audit by the Auditor General at no cost to the trust or
29 program.
30 (10) Deposits and contributions to the trust, the
31 property of the trust, and the earnings on the trust shall be
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1 exempt from all taxation by the state and all political
2 subdivisions of the state.
3 (11) The state, a county, a municipality, a political
4 subdivision, the trust, or the program may, by contract or
5 collective bargaining agreement, agree with any employee to
6 remit payments for deposit into the trust through payroll
7 deductions made by the appropriate office or officers of the
8 state, state agency, county, municipality, or political
9 subdivision. Such payments into the trust shall be treated as
10 all other deposits to the trust.
11 (12) The state pledges to depositors, designated
12 beneficiaries, and other parties who enter into contracts with
13 the trust under this section that the state will not limit or
14 alter the rights under this section vested in the trust or
15 contracts with the trust until such obligations are fully met
16 and discharged and such contracts are fully performed on the
17 part of the trust, provided that nothing in this subsection
18 shall preclude such limitation or alteration if adequate
19 provision is made by law for the protection of such depositors
20 and designated beneficiaries pursuant to the obligations of
21 the trust and other parties who entered into such contracts
22 with the trust. The trust, on behalf of the state, may include
23 this pledge and undertaking for the state in participation
24 agreements and such other obligations or contracts.
25 (13) Nothing in this section or in any participation
26 agreement shall constitute or be deemed to constitute an
27 agreement, pledge, promise, or guarantee of admission or
28 continued enrollment of any designated beneficiary or any
29 other person to or in any eligible educational institution in
30 the state or any other eligible educational institution. Each
31 participation agreement shall clearly state that participation
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1 in the program and trust does not guarantee admission or
2 continued enrollment at any eligible educational institution.
3 (14) Each participation agreement shall clearly state
4 that participation in the program and the trust does not
5 guarantee that sufficient funds will be available to cover all
6 qualified higher education expenses for any designated
7 beneficiary.
8 (15) This section shall be liberally construed in
9 order to effectuate the purposes and intent of this section.
10 It is the intent of the Legislature that the tuition savings
11 program established in this section qualify as a qualified
12 state tuition program under s. 529 of the Internal Revenue
13 Code. The commissioner shall take any action necessary to
14 ensure that the trust complies with all applicable
15 requirements of federal and state laws, rules, and regulations
16 to the extent necessary for the trust to constitute a
17 qualified state tuition program under s. 529 of the Internal
18 Revenue Code. Implementation of the program shall not begin
19 until the commissioner has received, in addition to the advice
20 of counsel required in paragraph (6)(b), a favorable opinion
21 from counsel to the effect that the program constitutes a
22 qualified state tuition program under s. 529 of the Internal
23 Revenue Code. However, upon the effective date of this act,
24 the commissioner may expend program funds to retain legal
25 service to render the required opinions, to be recovered as
26 provided in subsection (16).
27 (16) In order to pay for startup costs and expenses,
28 including legal fees, associated with the legal opinions
29 required in paragraph (6)(b) and subsection (15) and the cost
30 of issuing a request for proposals to privatize the
31 administration and management of the program as described in
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1 paragraph (5)(a), if any, the commissioner may advance to the
2 trust and program up to $75,000 during the first 12 months
3 after the effective date of this act. Any moneys so advanced,
4 plus interest, must be repaid to the commissioner by the trust
5 and the program no later than 24 months after the trust has
6 begun accepting deposits. Such costs may also be defrayed in
7 whole or in part by fees to be assessed by the commissioner to
8 entities responding to any competitive solicitation for the
9 trust or program. Interest shall be computed on the average
10 monthly balance outstanding at a rate equal to the prime
11 interest rate plus 1 percent. Ongoing administrative costs
12 incurred by the commissioner in monitoring the contract or
13 contracts relating to the trust and the program shall be
14 recovered from the successful contractor or contractors, which
15 funds may come from investment earnings accruing to the trust.
16 The commissioner is not entitled to a fee from the trust;
17 however, this does not preclude the commissioner from
18 receiving a fee for services rendered to the trust pursuant to
19 a contract.
20 (17) The trust is exempt from the deduction required
21 by s. 215.20(1).
22 (18) Members and employees of the Office of the
23 Commissioner of Education, the State Board of Education, or
24 the Department of Education are not prohibited from
25 individually becoming depositors or designated beneficiaries
26 by virtue of their fiduciary or other responsibilities with
27 the commissioner.
28 Section 2. If any provision of this act or the
29 application thereof to any person or circumstance is held
30 invalid, the invalidity shall not affect other provisions or
31 applications of the act which can be given effect without the
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1 invalid provision or application, and to this end the
2 provisions of this act are declared severable.
3 Section 3. This act shall take effect upon becoming a
4 law.
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7 HOUSE SUMMARY
8
Establishes the Florida Higher Education Savings Program.
9 Provides intent and definitions. Provides for
establishment and administration of the Florida Higher
10 Education Savings Trust. Provides for participation
agreements, investment of funds in the trust, payment of
11 higher education expenses from the trust, and withdrawals
from the trust, including certain penalties applicable
12 thereto. Requires annual reporting. Provides for
exemption from state and local taxes. Provides a state
13 pledge. Provides applicability with respect to enrollment
in institutions of higher education. Provides that moneys
14 in the trust are not assets for financial aid needs
testing. Provides for liberal construction. Requires
15 certain legal opinions prior to implementation. Provides
for startup funding. See bill for details.
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