HB-4542, As Passed Senate, September 29, 2015

SENATE SUBSTITUTE FOR

HOUSE BILL NO. 4542

A bill to create the Michigan achieving a better life

experience (ABLE) program; to provide for ABLE accounts; to

prescribe the powers and duties of certain state agencies, boards,

and departments; to allow certain tax credits or deductions; and to

provide for penalties and remedies.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 1. This act shall be known and may be cited as the

"Michigan achieving a better life experience (ABLE) program act".

Sec. 2. As used in this act:

(a) "ABLE" means achieving a better life experience.

(b) "ABLE savings account" or "account" means an account

established under this act.

this state, or a resident of a contracting state, and who enters

into a Michigan ABLE savings program agreement and establishes an

ABLE savings account. The account owner shall be the designated

beneficiary of the account unless the designated beneficiary is a

minor or lacks capacity to enter into an agreement, in which case a

designated representative may open an account on behalf of the

minor or incapacitated individual and serve as the account owner.

(d) "Contracting state" means a state without a qualified ABLE

program that has entered into a contract with this state to provide

its residents access to the Michigan ABLE program.

(e) "Department" means the department of treasury.

(f) "Designated beneficiary" means an eligible individual

designated as the individual whose qualified disability expenses

are expected to be paid from the account. The designated

beneficiary must be an eligible individual at the time the account

is established. The designated beneficiary shall be the account

owner unless he or she is a minor or lacks capacity to enter into

an agreement. The account owner may change the designated

beneficiary as provided in this act.

(g) "Designated representative" means an individual who is

authorized to act on behalf of the designated beneficiary if the

designated beneficiary is a minor or has a guardian, conservator,

or other fiduciary who has been appointed for purposes of managing

that designated beneficiary's financial affairs.

(h) "Disability certification" means that term as defined in

section 529A of the internal revenue code.

(i) "Eligible individual" means that term as defined in

section 529A of the internal revenue code.

(j) "Internal revenue code" means the United States internal

revenue code of 1986 in effect on January 1, 2015 or at the option

of the taxpayer, in effect for the current year.

(k) "Management contract" means the contract executed between

the treasurer and a program manager.

(l) "Member of the family" means a family member as defined in

section 529A of the internal revenue code.

(m) "Michigan ABLE savings program agreement" means the

agreement between the program and an account owner that establishes

an ABLE savings account.

(n) "Program" means the Michigan ABLE savings program

established pursuant to this act.

(o) "Program manager" means 1 or more entities selected by the

treasurer to act as a manager of the program.

(p) "Qualified disability expenses" means that term as defined

in section 529A of the internal revenue code.

(q) "Qualified withdrawal" means a distribution that is not

subject to a penalty or an excise tax under section 529A of the

internal revenue code or taxation under the income tax act of 1967,

1967 PA 281, MCL 206.1 to 206.713, and that meets any of the

following:

(i) A withdrawal from an account to pay the qualified

disability expenses of the designated beneficiary incurred after

the account is established.

(ii) A withdrawal made as the result of the death or

disability of the designated beneficiary of an account.

(iii) A transfer of funds due to the termination of the

management contract as provided in section 5.

(iv) A transfer of funds as provided in section 8.

(r) "Savings plan" or "plan" means a plan that provides

different investment strategies and allows account distributions

for qualified disability expenses.

(s) "Treasurer" means the state treasurer.

Sec. 3. (1) The Michigan ABLE savings program is established

in the department of treasury. The program shall consist of more

than 1 program manager and shall provide multiple savings plans.

(2) The treasurer shall solicit proposals from entities to be

a program manager to provide the services described in subsection

(5).

(3) The purposes, powers, and duties of the Michigan ABLE

savings program are vested in and shall be exercised by the

treasurer or the designee of the treasurer.

(4) The state treasurer shall administer the Michigan ABLE

savings program and shall be the trustee for the funds of the

Michigan ABLE savings program.

(5) The treasurer may employ or contract with personnel and

contract for services necessary for the administration of each

savings plan under the program and the investment of the assets of

each savings plan under the program including, but not limited to,

managerial, professional, legal, clerical, technical, and

administrative personnel or services.

(6) When selecting program managers, the treasurer shall give

preference to proposals from single entities that propose to

provide all of the functions described in subsection (5) and that

demonstrate the most advantageous combination, to both potential

participants and this state, of the following factors and the

management contract shall address these factors:

(a) Financial stability.

(b) The safety of the investment instruments being offered.

increasing costs of disability expenses.

(d) The ability of an entity to satisfy the record-keeping and

reporting requirements of this act.

(e) The entity's plan for marketing the savings plan and the

investment it is willing to make to promote the savings plan.

(f) The fees, if any, proposed to be charged to persons for

opening or maintaining an account.

(g) The minimum initial deposit and minimum contributions that

the entity will require which, for the first year of the savings

plan, shall not be greater than $25.00 for a cash contribution or

$15.00 per pay period for payroll deduction plans.

(h) The ability of an entity to accept electronic withdrawals,

including payroll deduction plans.

(i) The willingness of an entity to offer a program of broker-

sold products available through financial advisors.

(j) The ability of an entity to provide financial literacy

materials and training resources, as described by the department,

to all account owners.

(k) The ability of an entity to provide a higher level of

customer service to support the unique needs of designated

beneficiaries.

(7) The treasurer shall enter into a contract with each

program manager which shall address the respective authority and

responsibility of the treasurer and the program manager to do all

of the following:

(a) Develop and implement the savings plan or plans offered

under the program.

(b) Invest the money received from account owners in 1 or more

investment instruments.

to provide professional and technical assistance and advice.

(d) Determine the use of financial organizations as account

depositories and financial managers.

(e) Charge, impose, and collect annual administrative fees and

service in connection with any agreements, contracts, and

transactions relating to individual accounts, exclusive of initial

sales charges, which shall not exceed 2.0% of the average daily net

assets of the account.

(f) Develop marketing plans and promotional material.

(g) Establish the methods by which funds are allocated to pay

for administrative costs.

(h) Provide criteria for terminating and not renewing the

management contract.

(i) Address the ability of the program manager to take any

action required to keep the savings plan or plans offered under the

program in compliance with requirements of this act and its

management contract and to manage the savings plan or plans offered

under the program to qualify as a qualified ABLE program under

section 529A of the internal revenue code.

(j) Keep adequate records of each account and provide the

treasurer with information that the treasurer requires related to

those records.

(k) Compile the information contained in statements required

to be prepared under this act and provide that compilation to the

treasurer in a timely manner.

(l) Hold all accounts for the benefit of the designated

beneficiary.

(m) Provide for audits at least annually by a firm of

certified public accountants.

(n) Provide the treasurer with copies of all regulatory

filings and reports related to the savings plan or plans offered

under the program made during the term of the management contract

or while the program manager is holding any accounts, other than

confidential filings or reports except to the extent those filings

or reports are related to or are a part of the savings plan or

plans offered under the program. It is the responsibility of the

program manager to make available for review by the treasurer the

results of any periodic examination of the program manager by any

state or federal banking, insurance, or securities commission,

except to the extent that the report or reports are not required to

be disclosed under state or federal law.

(o) Ensure that any description of the savings plan or plans

offered under the program, whether in writing or through the use of

any media, is consistent with the marketing plan developed by the

program manager.

(p) Offer a program of broker-sold products available through

financial advisors.

(q) Take any other necessary and proper activities to carry

out the purposes of this act.

Sec. 4. The treasurer shall be responsible for the ongoing

supervision of each management contract.

Sec. 5. (1) A management contract shall be for a term of years

specified in the management contract.

(2) The treasurer may terminate a management contract based on

the criteria specified in the management contract.

Sec. 6. The treasurer may enter into contracts that it

considers necessary and proper for the implementation of this

program.

Sec. 7. (1) Beginning January 1, 2016, ABLE savings accounts

may be established under this act.

(2) Any individual who is a resident of this state or a

resident of a contracting state may open an ABLE savings account to

save money to pay the qualified disability expenses of the

designated beneficiary. Each account opened under this act shall

have only 1 designated beneficiary. Only 1 account shall be opened

for any 1 designated beneficiary.

(3) To open an ABLE savings account, the individual or

designated representative of a designated beneficiary shall enter

into a Michigan ABLE savings program agreement with the program.

The program shall recognize an individual as a designated

representative and not require a designated representative to

obtain court approval before opening and funding an ABLE savings

account under this act. The Michigan ABLE savings program agreement

shall be in the form prescribed by a program manager and approved

by the treasurer and contain all of the following:

(a) The name, address, and social security number of the

account owner.

(b) A designated beneficiary. The name, address, and social

security number of the designated beneficiary, if the account owner

is the designated beneficiary's designated representative.

manager considers necessary.

(4) Any person may make contributions to an account after the

account is opened, subject to the limitations imposed by section

529A of the internal revenue code or any rules and regulations

promulgated by the treasurer pursuant to this act.

(5) Contributions to accounts shall only be made in cash, by

check, by credit card, or by any similar method as approved by the

state treasurer but shall not be property.

(6) Notwithstanding any other provision of law to the

contrary, money in the ABLE savings account shall be exempt from

creditor process and shall not be liable to attachment,

garnishment, or other process, nor shall it be seized, taken,

appropriated, or applied by any legal or equitable process or

operation of law to pay any debt or liability of the designated

beneficiary or account owner. However, this state may be a creditor

of the account in the event of the death of the designated

beneficiary as provided under section 529A(f) of the internal

revenue code.

(7) Distributions from an account shall be made in the

following manner:

(a) In the form of a check payable to the designated

beneficiary or account owner.

(b) In the form of an electronic funds transfer to an account

specified by the designated beneficiary or account owner.

qualified disability expenses, if purchased for a designated

beneficiary.

(8) Each savings plan under the program shall provide separate

accounting for each designated beneficiary.

Sec. 8. (1) Changes in account owners or designated

beneficiaries are permitted as follows:

(a) An account owner may change the designated beneficiary of

an account to another eligible individual who is a member of the

family of the previously designated beneficiary.

(b) An account owner may transfer all or a portion of an

account to another ABLE savings account with another designated

beneficiary as long as the new designated beneficiary of the

account to which the transfer is made is an eligible individual and

a member of the family of the previous designated beneficiary.

successor owner of the account in the event of the death of the

account owner. The successor owner must meet the definition of an

account owner under this act.

(2) Changes in designated beneficiaries and transfers under

this section are not permitted to the extent that the change or

transfer would constitute excess contributions or unauthorized

investment choices.

Sec. 9. (1) An account owner shall not, directly or

indirectly, direct the investment of any contributions to an

account or the earnings on an account in violation of section 529A

of the internal revenue code. An account owner may select among

different investment strategies designed by a program manager to

the extent allowed under section 529A of the internal revenue code.

(2) The program may allow employees of the program, or the

employees of a contractor hired by the program to perform

administrative services, to make contributions to an account.

(3) An interest in an account shall not be used by an account

owner or a designated beneficiary as security for a loan. Any

pledge of an interest in an account has no force or effect.

Sec. 10. (1) The maximum account balance limit for an ABLE

account shall not exceed the maximum amount allowed for an

education savings account pursuant to section 10 of the Michigan

education savings program act, 2000 PA 161, MCL 390.1480.

(2) The program manager shall notify an account owner if the

annual contributions to an ABLE savings account get within

$1,000.00 of the contributions limits established under section

7(4). The program manager shall provide an account owner with

written notification at least 5 business days before rejecting a

contribution as provided in subsection (3).

(3) The program manager shall reject a contribution to any

account for a designated beneficiary if, at the time of the

contribution, the total balance of the account for that designated

beneficiary has reached the maximum account balance limit under

subsection (1) or the contribution is in excess of the limits

established pursuant to section 7(4). An account may continue to

accrue earnings if the total balance of the account for that

beneficiary has reached the maximum account balance limit and shall

not be considered to have exceeded the maximum account balance

limit under subsection (1).

Sec. 11. (1) In accordance with section 529A(d) of the

internal revenue code, each program manager shall submit both of

the following to the internal revenue service and the department:

(a) A notice upon the establishment of each ABLE savings

account. The notice must contain the name and state of residence of

the designated beneficiary and any other information as required by

law or regulation.

(b) An aggregate report of the contributions, distributions,

the return of excess contributions, and any other matter as

required by law or regulation regarding its ABLE program during the

tax year.

(2) Each program manager shall provide to the account owner,

on or before the January 31 following the end of each calendar

year, statements that identify the individual contributions made

during the tax year, the total contributions made to the account

for the tax year, the value of the account at the end of the tax

year, distributions made during the tax year, the amount of excess

contributions returned during the tax year, and any other

information as required by the department.

(3) As required under section 529A(d) of the internal revenue

code, the department shall electronically submit on a monthly basis

to the commissioner of social security, in a manner specified by

the commissioner of social security, statements on relevant

distributions and account balances from all ABLE savings accounts.

Sec. 12. Each program manager shall disclose the following

information in writing to each account owner of an ABLE savings

account and any other person who requests information about an ABLE

savings account:

(a) The terms and conditions for establishing an ABLE savings

account.

(b) Restrictions on the substitutions of designated

beneficiaries and transfer of account funds.

program agreement.

(d) The period of time during which a designated beneficiary

may receive benefits under the Michigan ABLE savings program

agreement.

(e) The terms and conditions under which money may be wholly

or partially withdrawn from an account or the program, including,

but not limited to, any reasonable charges and fees and penalties

that may be imposed for withdrawal.

(f) The potential tax consequences associated with

contributions to and distributions and withdrawals from accounts.

(g) Investment history and potential growth of account funds

and a projection of the impact of the growth of the account funds

on the maximum amount allowable in an account.

(h) All other rights and obligations under Michigan ABLE

savings program agreements and any other terms, conditions, and

provisions of a contract or an agreement entered into under this

act.

Sec. 13. This act and any agreement under this act shall not

be construed or interpreted to do any of the following:

(a) Give any designated beneficiary any rights or legal

interest with respect to an account unless the designated

beneficiary is the account owner.

(b) Give residency status to an individual merely because the

individual is a designated beneficiary.

Sec. 14. (1) This act does not create and shall not be

construed to create any obligation upon this state or any agency or

instrumentality of this state to guarantee for the benefit of an

account owner or designated beneficiary any of the following:

(a) The rate of interest or other return on an account.

(b) The payment of interest or other return on an account.

(2) The contracts, applications, deposit slips, and other

similar documents used in connection with a contribution to an

account shall clearly indicate that the account is not insured by

this state and that the money deposited into and investment return

earned on an account are not guaranteed by this state.

Sec. 15. Each program manager shall file an annual report with

the treasurer that includes all of the following:

(a) The names and identification numbers of account owners and

designated beneficiaries. The information reported pursuant to this

subdivision is not subject to the freedom of information act, 1976

PA 442, MCL 15.231 to 15.246.

(b) The total amount contributed to all accounts during the

year.

each distribution was a qualified withdrawal.

(d) Any information that the program manager or treasurer may

require regarding the taxation of amounts contributed to or

withdrawn from accounts.

Sec. 16. (1) Contributions to and interest earned on an ABLE

savings account are exempt from taxation as provided in section 30

of the income tax act of 1967, 1967 PA 281, MCL 206.30.

(2) Withdrawals made from ABLE savings accounts are taxable as

provided in section 30 of the income tax act of 1967, 1967 PA 281,

MCL 206.30.

Sec. 17. (1) Notwithstanding any other provision of law

regarding an assistance program offered by this state that requires

consideration of 1 or more financial circumstances of an

individual, for the purpose of determining eligibility to receive,

or the amount of, any assistance or benefit authorized by that

provision to be provided to or for the benefit of an individual,

any amount and interest earned on an ABLE savings account for the

individual, any contributions to the ABLE savings account of the

individual, and any distribution for qualified disability expenses

shall be disregarded as provided in section 10g of the social

welfare act, 1939 PA 280, MCL 400.10g, with respect to any period

during which the individual maintains, makes contributions to, or

receives distributions from his or her ABLE savings account.

(2) Upon the death of the designated beneficiary, the amount

remaining in his or her ABLE savings account shall be distributed

pursuant to section 529A(f) of the internal revenue code.

Enacting section 1. This act takes effect 90 days after the

date it is enacted into law.

Enacting section 2. This act does not take effect unless all

of the following bills of the 98th Legislature are enacted into

law:

(a) Senate Bill No. 360.

(b) House Bill No. 4543.