00 CS FOR SPONSOR SUBSTITUTE FOR SENATE BILL NO. 186(HES) 01 "An Act relating to a University of Alaska postsecondary education savings 02 program, to the Alaska Higher Education Savings Trust, and to the Alaska 03 advance college tuition savings fund; and providing for an effective date." 04 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 05 * Section 1. AS 09.25.120(a)(7) is amended to read: 06 (7) names, addresses, and other information identifying a person as a 07 participant in the Alaska Higher Education Savings Trust under AS 14.40.802 or 08 the advance college tuition savings [PAYMENT] program under AS 14.40.803 - 09 14.40.817; 10 * Sec. 2. AS 09.38.015(a)(9) is amended to read: 11 (9) tuition credit or savings accounts [CREDITS] under a higher 12 education savings account established under AS 14.40.802 or an advance college 13 tuition savings [PAYMENT] contract authorized under AS 14.40.809(a); 14 * Sec. 3. AS 14.40.170(a) is amended by adding a new paragraph to read: 01 (10) administer, manage, market, and promote a postsecondary 02 education savings program; the program must include the Alaska Higher Education 03 Savings Trust under AS 14.40.802 and the Alaska advance college tuition savings fund 04 under AS 14.40.803 - 14.40.817. 05 * Sec. 4. AS 14.40 is amended by adding a new section to article 6 to read: 06 Sec. 14.40.802. Alaska Higher Education Savings Trust. (a) The Alaska 07 Higher Education Savings Trust is established in the University of Alaska. The 08 purpose of this trust is to secure obligations to participants and beneficiaries under a 09 postsecondary education savings program operated by the University of Alaska and to 10 provide participants a convenient method of saving for college or other postsecondary 11 education. The Board of Regents of the University of Alaska shall 12 (1) adopt policies that provide for the administration, management, 13 promotion, and marketing of the trust; 14 (2) maintain the trust in compliance with requirements of 26 U.S.C. 15 (Internal Revenue Code) for a qualified state tuition program as defined in 16 26 U.S.C. 529; 17 (3) coordinate savings options established under the trust and the 18 administration of the trust with the Alaska advance college tuition savings fund (AS 19 14.40.803), including the creation of common administrative and record-keeping 20 systems, marketing programs, and operating reserves; 21 (4) establish participation agreements, including application, savings 22 options, and withdrawal procedures; 23 (5) enter into participation agreements with participants for the 24 (A) accumulation, investment, and distribution of funds; 25 (B) payment or reimbursement of qualified higher education 26 expenses; and 27 (C) benefit of a beneficiary; 28 (6) enter into contracts with one or more contractors, including 29 investment managers; in determining the persons to act as investment managers, 30 consideration must be given to the qualifications of the contractor, including the 31 contractor's ability to 01 (A) administer financial programs with individual account 02 maintenance and reporting; 03 (B) develop, market, and administer investment options 04 appropriate for the trust; and 05 (C) augment the savings program with other beneficial products 06 and services; 07 (7) allow both residents and nonresidents to participate in the trust; 08 (8) allow the transfer or rollover of funds from the Alaska advance 09 college tuition savings fund and other qualified state tuition programs under 26 U.S.C. 10 529 and the participation agreement; 11 (9) allow withdrawals from the trust to be used for qualified higher 12 education expenses, including room and board as allowed by 26 U.S.C. 529; 13 (10) establish penalties for withdrawals from the trust for nonqualified 14 expenses and other distributions as required under 26 U.S.C. 529 or as provided in the 15 participation agreement; 16 (11) engage an independent firm of certified public accountants to audit 17 the financial position of the trust. 18 (b) The board may 19 (1) divide the trust into multiple investment portfolios; 20 (2) commingle amounts credited to some or all accounts for investment 21 purposes; 22 (3) establish trusts and accounts as the board considers appropriate 23 under 26 U.S.C. 529; 24 (4) require trust participants to pay administrative fees; 25 (5) establish earnings reserves as provided in the participation 26 agreement, including reserves for the payment of administrative costs. 27 (c) The University of Alaska, the board, the state, or an agency of the state is 28 not liable for a loss of funds that are invested under a participation agreement or for 29 the denial of a perceived tax or other benefit. The board shall provide written notice 30 to each applicant that there is no guarantee of any rate of return or benefit and that any 31 risk of loss in account value or other benefit rests exclusively with the participant and 01 the beneficiary. 02 (d) Notwithstanding any other provision of law, earnings on funds deposited 03 with the trust are not subject to taxation by the state or a municipality. 04 (e) Funds on deposit with the trust may not be considered by the University 05 of Alaska or an agency of the state to limit eligibility for a state-funded scholarship. 06 (f) A participant has the right, as provided in the participation agreement, to 07 (1) change the beneficiary of an account to another individual who is 08 a member of the family of the former beneficiary; or 09 (2) direct that all or a portion of an account be transferred to an 10 account with a new beneficiary if the new beneficiary is a member of the family of 11 the former beneficiary. 12 (g) The right to change the beneficiary or to transfer between accounts 13 described in (f) of this section may be denied or limited as provided in the 14 participation agreement, including transfers that would result in contributions or 15 account balances in excess of allowable limits under the participation agreement. 16 (h) An account established under this section 17 (1) is exempt from a claim by the creditors of a participant or of a 18 beneficiary; 19 (2) is conclusively presumed to be a spendthrift trust; 20 (3) is not an asset or property of either the participant or the 21 beneficiary; 22 (4) may not be assigned, pledged, or otherwise used to secure a loan 23 or other advancement; 24 (5) is not subject to involuntarily transfer or alienation. 25 (i) Except as permitted in 26 U.S.C. 529, a participant or beneficiary may not 26 directly or indirectly direct the investment of an account or earnings on the account. 27 (j) A participant may, as provided in the participation agreement, designate a 28 person other than the participant as a successor participant. The designation of a 29 successor participant does not take effect until the participant dies or is declared legally 30 incompetent. If a participant dies or is declared legally incompetent without having 31 effectively designated a successor participant, the beneficiary may designate a 01 successor participant in the manner prescribed above if the beneficiary is not the same 02 person as the successor participant. 03 (k) The trust, a participation agreement, and this section are intended to 04 comply with the requirements of 26 U.S.C. 529 and shall be interpreted in that manner 05 to the extent permitted by law. 06 (l) The trust and participation agreements may be modified or amended on a 07 retroactive basis in order to maintain compliance with 26 U.S.C. (Internal Revenue 08 Code) and to maintain efficient operation of the trust as determined by the board. 09 (m) A name, address, or other information identifying a person as a participant 10 or beneficiary in the trust is confidential. 11 (n) In this section, 12 (1) "account" means an individual trust account established under this 13 section; 14 (2) "beneficiary" means any person designated by a participation 15 agreement, or by another method of designation authorized in this section, to benefit 16 from payments for qualified higher education expenses at an eligible educational 17 institution; 18 (3) "board" means the Board of Regents of the University of Alaska; 19 (4) "member of the family" has the meaning given in 26 U.S.C. 529(e); 20 (5) "participant" means a person who has entered into a participation 21 agreement or has been appointed as a participant as provided in this section and in the 22 participation agreement; 23 (6) "participation agreement" means an agreement between a participant 24 and the board providing for the establishment by the participant of one or more 25 accounts under this section and for the administration of those accounts for the benefit 26 of the participant and the beneficiary; 27 (7) "qualified higher education expenses" has the meaning given in 28 26 U.S.C. 529(e); 29 (8) "trust" means the Alaska Higher Education Savings Trust. 30 * Sec. 5. AS 14.40.803 is amended to read: 31 Sec. 14.40.803. Alaska advance college tuition savings [PAYMENT] fund 01 [ESTABLISHED]. (a) The Alaska advance college tuition savings [PAYMENT] 02 fund is established as a nonlapsing fund of the University of Alaska. The [FUND IS 03 ESTABLISHED FOR THE] purpose of the fund is to secure obligations to 04 participants under a postsecondary education savings program operated by the 05 University of Alaska and to enhance [ENHANCING] the ability of the university to 06 provide (1) higher education for the people of the state; (2) wide and affordable access 07 to higher education for residents and their children; (3) an incentive for residents to 08 achieve higher academic standards in grades 7 - 12; and (4) an incentive for residents 09 to continue and complete secondary and postsecondary education. The fund may be 10 divided into separate accounts for accounting purposes. 11 (b) The fund consists of 12 (1) permanent fund dividend and cash contributions made under 13 AS 14.40.807 under the terms of an advance college tuition savings [PAYMENT] 14 contract; 15 (2) appropriations, gifts, bequests, and contributions; and 16 (3) income and earnings of the fund. 17 (c) Assets of the fund shall be expended to make payments to the university 18 and other eligible educational institutions, including payments for refunds, redemptions, 19 and awards under a savings [AN ADVANCE TUITION PAYMENT] contract or 20 scholarships, [A PREPAID TUITION SCHOLARSHIP, AND] costs of administration , 21 and other obligations of the fund. 22 * Sec. 6. AS 14.40.807(a) is amended to read: 23 (a) Contributions to the fund under the terms of an advance college tuition 24 savings [PAYMENT] contract may be made by direct cash payments or by 25 contributions from the permanent fund dividend. The Department of Revenue shall 26 (1) prepare the permanent fund dividend application to allow an 27 applicant or a parent, legal guardian, or other authorized representative of an applicant 28 who is an unemancipated minor to contribute 50 percent of a dividend to the fund 29 [UNDER THE TERMS OF AN ADVANCE TUITION PAYMENT CONTRACT]; and 30 (2) include with each application for a permanent fund dividend an 31 explanation of the advance college [ADVANCED] tuition savings [PAYMENT] 01 program, including the right to receive a refund, a disclosure of the potential tax 02 liability of the fund, and disclosure of the possible general effect of the tax liability on 03 the advance college tuition savings [PAYMENT] program. 04 * Sec. 7. AS 14.40.809 is amended to read: 05 Sec. 14.40.809. Powers and duties of the University of Alaska. (a) The 06 Board of Regents of the University of Alaska may contract with a purchaser for the 07 purchase of advance college tuition credits for the payment of tuition and other 08 qualified higher education expenses [BY THE PURCHASER] for a beneficiary of any 09 age to attend a branch of the university or other eligible educational institution to 10 which the beneficiary is admitted. A purchaser and a beneficiary may be the same 11 person. 12 (b) The board shall 13 (1) make appropriate arrangements as necessary to fulfill the board's 14 obligations under an advance college tuition savings [PAYMENT] contract; 15 (2) establish and adopt a formal plan for administration of the advance 16 college tuition savings [PAYMENT PROGRAM AND PREPAID TUITION 17 SCHOLARSHIP] program; the terms and conditions of the plan shall be considered 18 a part of an advance college tuition savings [PAYMENT] contract; 19 (3) establish investment objectives, criteria, and asset allocation 20 guidelines for the fund based on prudent institutional investor guidelines and actuarial 21 analysis of the earnings requirements for the advance college tuition savings 22 [PAYMENT] plan; and 23 (4) enter into contracts or agreements considered necessary for the 24 investment of the fund, including contracts or agreements with investment 25 managers, consultants, and other custodians of the fund; 26 (5) engage a financial advisor to annually report on the investment 27 performance of the fund; 28 (6) engage an independent firm of certified public accountants to 29 audit the financial position of the fund; 30 (7) do all acts, whether or not expressly authorized, that the board 31 considers necessary or proper in administering the assets of the fund; 01 (8) enter into reciprocal agreements with Sheldon Jackson College, 02 Alaska Pacific University, and other eligible educational institutions or state tuition 03 programs that the board determines to be beneficial to the advance college tuition 04 savings [PAYMENT] program ; 05 (9) coordinate savings options established under the Alaska advance 06 college tuition savings program and the administration of the fund with the 07 Alaska Higher Education Savings Trust (AS 14.40.802) including the creation of 08 common administrative and record-keeping systems, marketing programs, and 09 operating reserves . 10 * Sec. 8. AS 14.40.811 is amended to read: 11 Sec. 14.40.811. Advance college tuition savings [PAYMENT] contracts. (a) 12 An advance college tuition savings [PAYMENT] contract must set out or include by 13 reference to the plan 14 (1) the name and date of birth of the purchaser and the beneficiary 15 under the contract; 16 (2) the number of advance college [PREPAID] tuition credits 17 purchased under the contract; 18 (3) the terms and conditions under which the contract may be 19 terminated and refunds made; 20 (4) the assumption of a contractual obligation by the board to provide 21 funding for specified education benefits for [TO] the beneficiary in accordance with 22 the terms of the plan; 23 (5) the period of time during which the beneficiary may receive the 24 benefits of the contract; and 25 (6) other terms and conditions the board determines to be appropriate 26 or that are required under 26 U.S.C. [BY THE UNITED STATES] ( Internal Revenue 27 Code ) . 28 (b) An advance college tuition savings [PAYMENT] contract may be 29 terminated 30 (1) if the board determines that the number of purchasers is insufficient 31 to maintain the fund on an actuarially sound basis; or 01 (2) under other circumstances determined by the board and set out in 02 the advance tuition savings [PAYMENT] contract or in the plan. 03 * Sec. 9. AS 14.40.817(1) is amended to read: 04 (1) "advance college tuition savings [PAYMENT] contract" or 05 "contract" means a contract entered into by the board and a purchaser to provide for 06 the qualified higher education expenses of a beneficiary; 07 * Sec. 10. AS 14.40.817(5) is amended to read: 08 (5) "fund" means the Alaska advance college tuition savings 09 [PAYMENT] fund established under AS 14.40.803; 10 * Sec. 11. AS 14.40.817(6) is amended to read: 11 (6) "plan" means the formal plan for administration of an advance 12 college tuition savings [PAYMENT] program [AND PREPAID TUITION 13 SCHOLARSHIP PROGRAM] adopted by the board under AS 14.40.809(b); 14 * Sec. 12. AS 14.40.817(7) is amended to read: 15 (7) "purchaser" means the person who is named in the contract and has the 16 rights conferred upon a purchaser under an advance college tuition savings 17 [PAYMENT] contract; 18 * Sec. 13. AS 45.55.990(32) is amended to read: 19 (32) "security" means a note; stock; treasury stock; bond; debenture; 20 evidence of indebtedness; certificate of interest or participation in any profit-sharing 21 agreement; limited liability company interest under AS 10.50, notwithstanding the 22 limitations of AS 45.08.103(c); collateral-trust certificate; preorganization certificate 23 or subscription; transferable share; investment contract; voting-trust certificate; 24 certificate of deposit for a security; certificate of interest or participation in an oil, gas, 25 or mining title or lease or in payments out of production under the title or lease or in 26 any sale of or indenture or bond or contract for the conveyance of land or any interest 27 in land; an option on a contract for the future delivery of agricultural or mineral 28 commodities or any other commodity offered or sold to the public and not regulated 29 by the Commodity Futures Trading Commission; however, the contract or option is not 30 subject to the provisions of AS 45.55.070 if it is sold or purchased on the floor of a 31 bona fide exchange or board of trade and offered or sold to the public by a broker- 01 dealer or agent registered under this chapter; investment of money or money's worth including 02 goods furnished or services performed in the risk capital of a venture with the expectation of 03 some benefit to the investor where the investor has no direct control over the investment or 04 policy decision of the venture; or, in general, any interest or instrument commonly known as 05 a "security," or any certificate of interest or participation in, temporary or interim certificate 06 for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the 07 foregoing; "security" does not include a participation agreement entered into under 08 AS 14.40.802 or an insurance or endowment policy or annuity contract under which an 09 insurance company promises to pay a fixed or variable sum of money either in a lump sum 10 or periodically for life or for some other specified period; 11 * Sec. 14. AS 14.40.805 is repealed. 12 * Sec. 15. This Act takes effect immediately under AS 01.10.070(c).