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NO. 79. AN ACT RELATING TO A VERMONT COLLEGE SAVINGS PLAN.

(H.427)

It is hereby enacted by the General Assembly of the State of Vermont:

Sec. 1. 16 V.S.A. chapter 87, subchapter 7 is added to read:

Subchapter 7. Vermont Higher Education Savings Plan

§ 2875. LEGISLATIVE FINDINGS AND INTENT

(a) The general welfare and well-being of the state are directly related to the educational levels and skills of its citizens.

(b) It is the policy of the state to advance post-secondary education opportunities by utilizing the state's limited resources in an effective, efficient and equitable manner.

(c) Given the cost of post-secondary education to students, families and the taxpayers of the state, it is in the public interest of the state to support supplemental means which will enable its citizens to pursue their educational aspirations.

(d) It is a valid and vital public purpose of the state to create a means of encouraging the savings and investing of funds for future post-secondary education, in compliance with the Internal Revenue Code of 1986, as amended.

(e) The implementation and effectuation of the Vermont higher education savings plan as provided by this subchapter furthers this public purpose.

§ 2876. DEFINITIONS

As used in this subchapter, except where the context clearly requires another interpretation:

(1) "Beneficiary" means any individual designated by a participation agreement to benefit from payments for post-secondary education costs at an institution of post-secondary education.

(2) "Benefits" means the payment of qualified post-secondary education costs on behalf of a beneficiary by the corporation's savings plan during the beneficiary's attendance at an institution of post-secondary education.

(3) "Corporation" means Vermont student assistance corporation.

(4) "Internal Revenue Code" means the federal Internal Revenue Code of 1986, as amended, together with the regulations promulgated thereunder.

(5) "Post-secondary education costs" means the qualified costs of tuition and fees and other expenses for attendance at an institution of post-secondary education, as defined in the Internal Revenue Code.

(6) "Institution of post-secondary education" means an institution as defined in the Internal Revenue Code.

(7) "Vermont higher education savings plan" or "savings plan" means the program created pursuant to this subchapter.

(8) "Participant" means a person who has entered into a participation agreement pursuant to this subchapter for the advance payment of post-secondary education costs on behalf of a beneficiary.

(9) "Participation agreement" means an agreement between a participant and the corporation, pursuant to and conforming with the requirements of this subchapter.

§ 2877. VERMONT HIGHER EDUCATION SAVINGS PLAN CREATED

(a) There is created a program of the state to be known as the Vermont higher education savings plan to be administered by the Vermont student assistance corporation as an instrumentality of the state.

(b) In order to establish and administer the savings plan, the corporation, in addition to its other powers and authority, shall have the power and authority to:

(1) Develop and implement educational programs and related informational materials for participants and their families. Special efforts shall be made to contact families with young children and to reach individuals whose access to higher education opportunities has been limited;

(2) Enter into agreements with any institution of post-secondary education, the state or any federal or other agency or entity as required for the operation of the savings plan pursuant to this subchapter;

(3) Accept any grants, gifts, legislative appropriations, and other moneys from the state, any unit of federal, state, or local government or any other person, firm, partnership, or corporation for deposit to the account of the savings plan;

(4) Invest the funds received from participants in appropriate investment vehicles,including education loans made by the corporation;

(5) Enter into participation agreements with participants;

(6) Develop and use two or more types of participation agreements to provide a range of savings plan investment structures;

(7) Make payments to institutions of post-secondary education on behalf of beneficiaries pursuant to participation agreements;

(8) Make refunds to participants upon the termination of participation agreements pursuant to the provisions, limitations, and restrictions set forth in this subchapter and the rules and regulations adopted by the corporation;

(9) Make provision for the payment of costs of administration and operation of the savings plan subject to the limitations on charges on participation agreements established in subdivision 2878(5) of this title;

(10) Adopt rules and regulations to implement this subchapter in conformance with the Internal Revenue Code and other applicable law; and

(11) Effectuate and carry out all of the powers granted by this subchapter, and have all other powers necessary to carry out and effectuate the purposes, objectives and provisions of this subchapter pertaining to the savings plan program, including the power to:

(A) Carry out studies and projections in order to advise participants regarding present and estimated future post-secondary education costs and levels of financial participation in the plan required in order to enable participants to achieve their educational funding objectives; and

(B) Procure insurance, guarantees or other protections against any loss in connection with the assets or activities of the savings plan.

§ 2878. PARTICIPATION AGREEMENTS FOR SAVINGS PLAN

The corporation shall have the authority to enter into savings plan participation agreements with participants on behalf of beneficiaries pursuant to the provisions of this subchapter, including the following terms and agreements:

(1) A participation agreement shall stipulate the terms and conditions of the savingsplan in which the participant makes deposits;

(2) A participation agreement shall specify the method for calculating the return on the deposit made by the participant, which may be a variable or adjustable rate of return;

(3) The execution of a participation agreement by the corporation shall not guarantee in any way that post-secondary education costs will be equal to projections and estimates provided by the corporation or that the beneficiary named in any participation agreement will be admitted to an institution of post-secondary education;

(4) A participation agreement shall clearly and prominently disclose to participants the risks associated with depositing moneys with the corporation;

(5) Participation agreements shall be organized and presented in a way and with language that is easily understandable by the general public. A participation agreement shall clearly and prominently disclose to participants the existence of any load charge or similar charge assessed against the accounts of the participants for administration, operation or services. No fee or similar charge may be imposed with regard to an investment managed by the corporation. Any fee, load or similar charge with regard to any investment not managed by the corporation shall be no greater than required to administer the investment. The cost of originating and servicing any education loans made or acquired pursuant to participation agreements shall not be considered as load charges or similar charges; and

(6) Any investment advisory or management contract used with respect to a participation agreement shall be competitively bid pursuant to guidelines established by the secretary of administration.

§ 2879. INVESTMENT AND PAYMENTS

All money paid by a participant in connection with participation agreements shall be deposited as received and shall be promptly invested by the corporation. Deposits and earnings thereon accumulated on behalf of participants in the savings plan may be used, as provided in the participation agreement, for payments to any institution of post-secondary education.

§ 2879a. CANCELLATION OF PARTICIPATION AGREEMENTS

(a) Any participant may cancel a participation agreement at will, and any return of funds from the participant's account shall be subject to terms and conditions established by the corporation, provided that any penalties levied as a result comply with the Internal Revenue Code's provisions relating to savings plans.

(b) The corporation may provide by rule that no termination penalty shall apply in certain circumstances.

§ 2879b. EFFECT OF PAYMENTS IN COMPUTATION AND DETERMINATION

OF FINANCIAL AID NEED

Amounts available for the payment of post-secondary education costs pursuant to the savings plan shall be considered family assets of the beneficiary in determining need and eligibility for student aid as determined by applicable law.

§ 2879c. TAX EXEMPTION

The assets of the Vermont higher education savings plan held by the corporation and the assets of any similar plan qualified under Section 529 of the Internal Revenue Code and any income therefrom shall be exempt from all taxation by the state or any of its political subdivisions. Income earned or received from the fund by any participant or beneficiary shall not be subject to state income tax and shall be eligible for any benefits provided in accordance with the savings plan provisions of the Internal Revenue Code. The exemption from taxation under this section shall apply only to assets and income maintained, accrued, or expended pursuant to the requirements of the Vermont higher education savings plan, the provisions of this subchapter, and the applicable provisions of the Internal Revenue Code. No exemption shall apply to assets and income expended for any other purposes.

§ 2879d. PROPERTY RIGHTS TO ASSETS IN THE PLAN

The assets of the Vermont higher education savings plan shall at all times be preserved, invested and expended solely and only for the purposes set forth in this chapter and in accordance with the participation agreements, and no property rights therein shall exist in favor of the state.

§ 2879e. CONSTRUCTION AND APPLICATION

This subchapter shall be construed liberally in order to effectuate its legislative intent. The purposes of this subchapter and all provisions of this subchapter with respect to powers granted shall be broadly interpreted to effectuate such intent and purposes and not as to any limitation of powers. This subchapter shall be interpreted and enforced in a manner that shall achieve this public purpose in compliance with the applicable provisions of the Internal Revenue Code.

§ 2879f. ANNUAL REPORTS

The corporation shall review, on an annual basis, the financial status of the program and the participation rate in the program. The corporation shall also review the continued viability of the program and the administration of the program by the corporation. The corporation shall report by January 15th the findings to the speaker of the house, the president pro tem of the senate, and to the house and senate committees on education.

Sec. 2. 32 V.S.A. § 5823(a)(7) is added to read:

(7) Income earned or received from the Vermont higher education savings plan under chapter 87 of Title 16.

Sec. 3. 32 V.S.A. § 5836(h) is added to read:

(h) The Vermont higher education savings plan shall not be subject to the tax imposed by this section.

Sec. 4. EFFECTIVE DATES

That part of Sec.1 of this act adding § 2879c (Tax Exemption) to the extent that it affects taxation of income earned or received by participants or beneficiaries, and Sec. 2 of this act shall take effect for taxable years beginning on and after January 1, 1999, and shall terminate on the effective date of any enactment by Congress which exempts income earned or received from the Vermont higher education savings plan from federal taxation under the Internal Revenue Code. The remainder of this act shall take effect July 1, 1997.

Approved: April 8, 1998