BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 449| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 449 Author: Irwin (D), et al. Amended: 9/3/15 in Senate Vote: 21 SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 6/24/15 AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach, Pavley SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/27/15 AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen ASSEMBLY FLOOR: 79-0, 6/2/15 - See last page for vote SUBJECT: Income taxation: savings plans: Qualified ABLE ProgramIncome taxation: savings plans: Qualified ABLE Program. SOURCE: Author DIGEST: This bill partially conforms state law to the recently enacted Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014 (ABLE Act). Senate Floor Amendments of 9/3/15 delete this bill's personal income tax provisions and remove new Welfare and Institutions Code sections 4875, 4876, 4879, 4881, and 4883, which will remain in SB 324 (Pavley), a complementary measure. The amendments also make AB 449's enactment contingent upon the enactment of SB 324. ANALYSIS: Existing law: AB 449 Page 2 1)Does not automatically conform to changes to federal tax law, except for specific retirement provisions. 2)Conforms to federal law as of a specified date, currently January 1, 2009. 3)Conforms with modifications to educations savings accounts authorized by Section 529 of the Internal Revenue Code (529s), and directs the State Treasurer's Office to implement California's 529 program, currently known as "ScholarShare." 4)Does not conform to the ABLE Act, which allows individuals who became blind or disabled before reaching 26 years of age to create tax-free savings accounts similar to 529s. 5)Applies income and asset tests for some programs benefitting disabled individuals. This bill: 1)Enacts the California Achieving a Better Life Experience Act, which conforms the Personal Income Tax Law to the ABLE Act, thereby allowing the creation of ABLE accounts in California and ensuring that ABLE account earnings and distributions for qualified services are not included in the eligible individual's income for state tax purposes. 2)Directs the ABLE Act Board to administer the program, annually prepare and adopt a written statement of investment policy in a public hearing, maintain separate accounting for each beneficiary, provide specified information to the Franchise Tax Board (FTB), and grants it specified powers, such as: a) The power to sue and be sued, make and enter into AB 449 Page 3 contracts to administer the program, and engage consultants. b) Enter into agreements with designated beneficiaries or eligible individuals to establish and maintain ABLE accounts. c) Make provisions to pay administrative and operation costs. d) Carry out the duties of this bill, the ABLE Act, and any federal regulations. e) Carry out studies and projections to advise beneficiaries regarding expenses and levels of financial participation. f) Promulgate, impose and collect administrative fees in connection with transactions in the ABLE Act program trust and provide for reasonable service charges, including cancellation penalties. g) Set minimum and maximum investment levels. h) Administer ABLE Act program trust funds. i) Procure insurance against any loss and insurance indemnifying any member of the board from personal loss, or liability as a result of his, or her action, or inaction as member of the Board. j) Issue regulations to implement the program, including emergency regulations. AB 449 Page 4 3)Requires the Treasurer to appoint an executive director and determine his or her duties, as well as fix the director's salary. a) States that the director serves at the pleasure of the Board. b) Allows the Board to authorize the director to enter into contracts or conduct any business necessary on its behalf. 4)Establishes the California ABLE Program Trust. a) Requires the Board to segregate monies into a program fund and an administrative fund, both of which are continuously appropriated to the Board to implement the Act. b) Caps administrative costs at 3% of the incoming funds in each fiscal year for the first five fiscal years and 1% for each fiscal year thereafter. c) Directs initial costs be funded by a loan from the General Fund sufficient to fund the first two fiscal years' projected administrative costs. d) Allows transfers from the program fund to the administrative fund, to pay operating costs in association with administering the ABLE program trust. 5)Allows the Treasurer, or the investment manager by contract with the Board, to invest or reinvest funds in whole or in part. AB 449 Page 5 a) Requires any investment manager to place on file for public inspection specified information, regarding investments no later than 30 days of the close of each month. b) Requires all moneys paid by designated beneficiaries, or eligible individuals in connection with accounts be deposited into the program fund and be promptly invested and accounted for separately. c) Allows deposits and earned interest to be used for qualified disability expenses. d) Allows designated beneficiaries to direct the investment of any contributions. e) States that all assets of the trust are held in trust for the beneficiary and no property rights exist in favor of the state. f) Prohibits the state from transferring or using any assets of the trust. 6)Requires the Board to market the program to residents, to the extent funds are available. 7)Provides that ABLE contributions and distributions below $100,000 don't count when considering individual's eligibility for any means-tested state or local program. 8)States that its provisions shall be liberally construed to effectuate its intent, and only become effective only if SB AB 449 Page 6 324 (Pavley) is also enacted. Background On December 19, 2014, President Obama signed the ABLE Act, which allows individuals who became blind or disabled before reaching age 26, to create tax-free savings accounts. ABLE accounts generally follow the same rules as 529s: individuals can make nondeductible cash contributions to an ABLE account in the name of a specified beneficiary, and earnings can grow tax free. ABLE account distributions are also not included in the beneficiary's income, so long as they're used for qualified services for the beneficiary and distributions don't exceed the cost of those services. The ABLE Act directs states to establish one ABLE account for each beneficiary who is a resident of the state. The ABLE Act additionally directs the IRS to issue regulations by June 19, 2015, to implement the program to guide states as they enact legislation creating ABLE accounts. AB 449 implements the ABLE Act in California, and directs the State Treasurer to administer ABLE accounts on behalf of qualified Californians. Related Legislation Currently, SB 324 (Pavley) contains provisions nearly identical to this bill, but will be amended to delete the provisions currently in this version of AB 449, so should these two complementary measures be enacted, California will have a comprehensive statute conforming to the ABLE Act. The bill is currently pending action on the Assembly Floor. FISCAL EFFECT: Appropriation: Yes Fiscal Com.:YesLocal: No According to the Senate Appropriations Committee, AB 449 results in a General Fund revenue loss of $100,000 in 2015-16, $400,000 in 2016-17, and $900,000 in 2017-18. FTB would incur minor costs to implement its provisions of this bill, while the Treasurer's Office would incur costs of approximately $330,000 annually. AB 449 Page 7 SUPPORT: (Verified9/4/15) State Treasurer John Chiang Alliance for Supporting People with Intellectual and Developmental Disabilities Association of Regional Center Agencies Autism Speaks California Association for Health Services at Home California Association of Public Authorities California Disability Services Association California Foundation for Independent Living Centers California State Council on Developmental Disabilities Cal-Tash California Taxpayers Association Center for Autism and Related Disorders Club 21 Learning and Resource Center Disability Rights California Down Syndrome Association of Central California Down Syndrome Association of Los Angeles, Inc. Down Syndrome Society of Orange County National Down Syndrome Association North Los Angeles County Regional Center Reid's Gift, Inc. Special Heroes (San Diego Down Syndrome) State Independent Living Council Strategies to Empower People The Arc and United Cerebral Palsy The Arc of Ventura County The South Bay Down Syndrome Association United Domestic Workers, AFSCME, Local 3930 OPPOSITION: (Verified9/4/15) None received ARGUMENTS IN SUPPORT: According to the author, "In California AB 449 Page 8 many people with disabilities and their families depend on a variety of public benefits for income, health care, food and housing assistance provided by the state and federal government. There are strict eligibility requirements for public benefits, such as Supplemental Security Income/State Supplementary Payment (SSI/SSP), CalFresh and Medi-Cal, which often don't allow an individual to have more than $2,000 in savings. To remain eligible for these public benefits, an individual cannot save for the future. AB 449 will give eligible Californians with disabilities access to federally recognized 529A ABLE accounts. The California ABLE program will be administered by the State Treasurer, who also administers 529 college savings accounts. Eligible individuals and families will be allowed to establish ABLE savings accounts that will not affect their eligibility for SSI, Medicaid and other public benefits. However, pursuant to federal law once an ABLE account reaches $100,000 SSI benefits are suspended until the balance goes below that amount. The ABLE Act recognizes the extra and significant costs of living with a disability. These include costs related to raising a child with significant disabilities or a working age adult with disabilities, for accessible housing and transportation, personal assistance services, assistive technology and health care not covered by insurance, Medicaid or Medicare. AB 449 will provide people with disabilities and families raising a child with disabilities an opportunity to save money without being penalized with loss of public social services." ASSEMBLY FLOOR: 79-0, 6/2/15 AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Atkins NO VOTE RECORDED: Chávez AB 449 Page 9 Prepared by:Colin Grinnell / GOV. & F. / (916) 651-4119 9/4/15 18:26:55 **** END ****