BILL ANALYSIS Ó
AB 1553
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Date of Hearing: April 18, 2016
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Sebastian Ridley-Thomas, Chair
AB 1553
(Irwin) - As Amended February 29, 2016
Majority vote. Fiscal committee.
SUBJECT: Savings plans: qualified ABLE program
SUMMARY: Authorizes the California ABLE Act Board (ABLE Board)
to enter into a multistate contract with an account servicer to
implement the ABLE program trust. Specifically, this bill:
1)Authorizes the ABLE Board to enter into a long-term multistate
contract with an account servicer.
2)Allows the account servicer to recoup costs from administering
ABLE accounts in the first years of administration.
3)Specifies that a provision of the Public Contract Code (PCC),
prohibiting the recipient of a consulting services contract
from bidding on a subsequent contract the recipient requires
or suggests, does not apply.
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EXISTING FEDERAL LAW:
1)Enacts the Stephen Beck, Jr., Achieving a Better Life
Experience Act of 2014 (ABLE Act), that assists individuals
and families to save private funds for the purpose of
supporting persons with disabilities to maintain their health,
independence, and quality of life by excluding from gross
income distributions used for qualified disability expenses by
a beneficiary of a qualified ABLE program established and
maintained by a state.
2)Provides that contributions to an ABLE account are not
deductible for federal income tax purposes, and aggregate
contributions during a taxable year may not exceed the annual
gift tax exclusion amount. For 2016, the annual gift tax
exclusion amount is $14,000.
3)Provides that distributions from an ABLE account are
excludable from income to the extent the total distribution
does not exceed the qualified disability expenses of the
beneficiary during the taxable year.
4)Defines "qualified disability expenses" as any expenses
related to an individual's blindness or disability, including
education, housing, transportation, employment training and
support, assistive technology and personal support services,
health, prevention and wellness, financial management and
administrative services, legal fees, expenses for oversight
and monitoring, funeral and burial expenses, and other
approved expenses.
5)Specifies that the qualified ABLE program must limit a
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designated beneficiary to one ABLE account.
6)Defines an "eligible individual" as an individual who meets
the requirements relating to blindness or disability under the
Supplemental Security Income (SSI) program. Generally, an
individual must be blind or disabled prior to age 26.
EXISTING STATE LAW
1)Conforms to federal income tax law provisions relating to the
ABLE Act under the Personal Income Tax (PIT) Law and the
Corporation Tax (CT) Law, allowing the creation of ABLE
accounts for beneficiaries in California and ensuring that
ABLE account earnings and distributions for qualified
disability expenses are not included in the eligible
individual's income for state tax purposes.
2)Establishes the California ABLE Program Trust (Trust) to
implement the federal ABLE Act.
3)Establishes the ABLE Board, chaired by the Treasurer and
consisting of the Director of Finance, the Controller, the
Director of Developmental Services, the Chairperson of the
State Council on Developmental Disabilities, the Director of
Rehabilitation, and the Chair of the State Independent Living
Council.
4)Authorizes the ABLE Board, in exercising the purposes, powers,
and duties of the Trust, amongst other duties, to do the
following:
a) Make and enter into contracts necessary for the
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administration of the Trust;
b) Enter into agreements with designated beneficiaries or
eligible individuals to establish and maintain an ABLE
account;
c) Set minimum and maximum investment levels; and,
d) Administer the funds of the Trust.
5)Requires the Treasurer to appoint an executive director who
may be authorized by the ABLE Board to enter into contracts on
behalf of the ABLE Board or conduct any business necessary for
the efficient operation of the ABLE Board.
6)Requires the ABLE Board to segregate moneys received by the
Trust into two funds, a program fund and an administrative
fund.
7)Authorizes moneys in the program fund to be invested or
reinvested by the Treasurer or under contract with an
investment manager determined by the ABLE Board.
8)Requires the ABLE Board annually to prepare and adopt a
written statement of investment policy in a public hearing,
and the investment manager to report publicly detailed
investment performance information no later than 30 days after
the close of each month.
9)Specifies that administrative costs will be available to the
ABLE Board upon appropriation and are capped at 3% of incoming
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funds each fiscal year for the first five fiscal years, and at
1% of incoming funds each fiscal year thereafter.
10) Specifies that funding for startup and administrative costs
for the ABLE Board will be loaned from the General Fund for
the first two years, and will be repaid when revenues from the
program are sufficient to cover the ABLE Board's ongoing
costs.
FISCAL EFFECT: Unknown
COMMENTS:
1)Author's Statement : The Author has provided the following
statement in support of this bill:
The California ABLE Act as signed into law by Governor
Brown in late 2015 will provide people with disabilities a
critical service by allowing them to save money for the
future without jeopardizing their disability benefits. The
State Treasurer and ABLE Act Board have requested the
authority to enter into a multistate, long-term contract
with an account service provider in order to successfully
implement the ABLE Act in a cost-effective manner. Current
statute does not give them this authority. AB 1553 is
cleanup language that will allow the successful and
effective implementation of AB 449 (Irwin 2015) and SB 324
(Pavley 2015).
2)Arguments in Support : The sponsor of this bill, State
Treasurer John Chiang, states:
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AB 1553 makes technical improvements upon existing law and
standardizes California's ABLE Act statute to regulations
issued by the federal government in November 2015. To
minimize administrative costs during program
implementation, AB 1553 also allows the California ABLE
Board the option of entering into a multi-state consortium
and a long-term contract with a service provider.
3)ABLE Accounts Model Scholarshare Accounts : The California
ABLE Act allows Californians with disabilities to access
federally recognized ABLE tax-free savings accounts to save
for future disability-related expenses. ABLE accounts
generally follow the same rules as 529 Qualified Tuition
Programs, administered in California as the Golden State
Scholarshare College Savings Trust (Scholarshare) -
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
are used for qualified services for the beneficiary and
distributions do not exceed the cost of those services.
Both programs are also administered by boards chaired by the
State Treasurer with similar authorizing powers. The ABLE
Board and Scholarshare Investment Board (SIB) have authority
to enter into contracts necessary for administration of their
respective trusts. Any investment manager contracted with the
ABLE Board or SIB must follow investment level guidelines set
by the boards and publicly report detailed investment
performance information each month.
4)Implementation of the ABLE Act : The ABLE Board has not yet
met in a formal capacity and has no dedicated staff. As such,
the ABLE Board has not entered into any contracts for
administration of the program or beneficiary accounts.
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Aside from California, 41 other states have successfully
passed ABLE Act legislation, and 6 states have ABLE Act
legislation currently pending. The U.S. Department of
Treasury issued proposed regulations for the federal ABLE Act
in June 2015, with states awaiting final guidance for program
implementation. As a result, all states are still in the
process of developing their ABLE programs, with most states
aiming to offer ABLE accounts by 2017.
5)Role of the Multistate Account Servicer : Scholarshare is
currently managed by TIAA-CREF Tuition Financing, Inc., which
operates 10 other distinct state-sponsored 529 college savings
plans in addition to California's. Although ABLE accounts
provide similar preferential tax treatment as Scholarshare
accounts, they may not realize the same level of investment
growth because distributions are intended to support immediate
and ongoing expenses for an individual with disabilities, such
as housing, health, transportation, and personal support
services, compared to Scholarshare accounts intended to remain
untapped until the beneficiary is ready to enter college. It
is also likely that there is a larger beneficiary pool for
Scholarshare accounts than for ABLE accounts, allowing better
estimation of demand for Scholarshare accounts than ABLE
accounts. Accordingly, the State Treasurer believes that
entering into a multistate consortium for administration of
ABLE accounts may help minimize implementation costs. Other
states that have passed ABLE Act legislation are also
considering multistate consortiums to administer their trusts.
This bill authorizes the ABLE Board to enter into a long-term,
multistate contract with an account servicer that would manage
a collective pool of accounts across different states.
However, since existing law already authorizes the ABLE Board
to enter into contracts necessary for efficient operation of
the Trust, it is unclear why the express authorization
provided in this bill is needed. There is no general
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prohibition on multistate contracts and this bill would not
exempt the ABLE Board from existing competitive bid
requirements, except that this bill would exempt any
multistate contract entered into by the ABLE Board from a
provision of the PCC prohibiting "follow-on" contracts in
which a recipient of a consulting services contract bids on a
subsequent contract it requires or suggests. The intent of
this exemption language is to avoid discouraging potential
vendors from bidding on a potential contract to design Trust
regulations, as they would then otherwise be prohibited from
subsequently bidding to administer the Trust. Since the
market for account servicers is still undetermined, the
Committee may wish to consider whether this exemption is
premature.
6)Related Legislation : AB 449 (Irwin), Chapter 774, Statutes of
2015, and SB 324 (Pavley), Chapter 796, Statutes of 2015,
enacted the California ABLE Act.
REGISTERED SUPPORT / OPPOSITION:
Support
California State Treasurer John Chiang (Sponsor)
State Council on Developmental Disabilities
The Arc and United Cerebral Palsy California Collaboration
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Opposition
None on file
Analysis Prepared by:Irene Ho / REV. & TAX. / (916) 319-2098