BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 1553 |Hearing |6/15/16 |
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|Author: |Irwin |Tax Levy: |No |
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|Version: |2/29/16 |Fiscal: |Yes |
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|Consultant|Grinnell |
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Savings plans: qualified ABLE program
Changes the state's implementation of Achieving a Better Life
Accounts.
Background
California law does not automatically conform to changes to
federal tax law, except for specific retirement provisions.
Instead, the Legislature must affirmatively conform to federal
changes. Conformity legislation is introduced either as
individual tax bills to conform to specific federal changes,
like the Mortgage Debt Forgiveness Relief Act (AB 1393, Perea,
2014), or as one omnibus bill that provides that state law
conforms to federal law as of a specified date, currently
January 1, 2015 (AB 154, Ting, 2010).
On December 19, 2014, President Obama signed the Stephen Beck,
Jr., Achieving a Better Life Experience Act of 2014 (ABLE),
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 educations savings
accounts allowed by Section 529 of the Internal Revenue Code
(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
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for qualified services for the beneficiary, and distributions
don't exceed the cost of the qualified services. The ABLE Act
directed states to establish one ABLE account for each
beneficiary who is a resident of the state. The ABLE Act
additionally directed the Internal Revenue Service (IRS) to
issue regulations to implement the program to guide states as
they enact legislation creating ABLE accounts. IRS has since
issued proposed regulations, updated them, and issued
Publication 907: Tax Highlights for Persons with Disabilities,
which details ABLE accounts.
Last year, the Legislature enacted two complementary bills to
comprehensively implement ABLE accounts in California, which
created the ABLE trust with specified powers, as well as an ABLE
board with specified membership within the State Treasurer's
Office to administer the program, among other measures (SB 324,
Pavley, and AB 449, Irwin). The ABLE Act Board has not yet
formally met, and doesn't have dedicated staff, but the 2016-17
Governor's Budget proposed an $850,000 loan from the General
Fund to cover the program's startup costs, which Senate Budget
Subcommittee #4 recently approved. California along with other
states find themselves at different points in the process of
implementing the ABLE Act: Ohio became the first state to
implement ABLE accounts on June 2nd, with Iowa, Nebraska, and
Florida likely to follow soon. With California getting ready to
implement ABLE accounts, the State Treasurer's Office wants to
change two sections of law implementing the ABLE Act in the
state.
Beneficiary Eligibility. When the Legislature enacted the two
bills, they required that to be eligible, a beneficiary must be
entitled to benefits based on blindness and disability under the
Social Security Act, with onset before 26 years of age, and have
a disability certificate filed pursuant to ABLE Act
requirements. However, responding to comments on the proposed
regulations, updated Internal Revenue Service guidance now also
allows a beneficiary to qualify on the basis of a certification,
signed under penalties of perjury, that the individual has a
condition that meets all of the required elements, and that a
diagnosis signed by a physician regarding the relevant
impairment or impairments have been obtained.
Contracting. AB 449 allowed the ABLE Act Trust to enter into
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contracts necessary for the administration of the ABLE program
trust, and engage personnel, including consultants, actuaries,
managers, counsel, and auditors, as necessary for the purpose of
rendering professional, managerial, and technical assistance and
advice.
Proposed Law
Assembly Bill 1553 makes the following changes to the state's
ABLE Act conformity laws as enacted by SB 324 and AB 449:
Modifies the eligibility definition to allow an
individual to qualify as a beneficiary who either:
o Is entitled to benefits based on blindness or
disability under the Social Security Act, and that
blindness or disability occurred before the individual
reached age 26.
o Has filed a disability certification, as
defined in the federal ABLE Act, pursuant to the
requirements set forth in the federal ABLE Act.
Allows the ABLE Act Board to enter into a multistate
contract with an account servicer to implement the program,
Allows the ABLE Act Board to enter into a long-term
contract with an account servicer to recoup costs from
administering ABLE accounts in the first years of
administration, and
Exempts contracts listed above from provisions of the
Public Contract Code that precludes contractors who have
been awarded consulting services contracts from submitting
bids and being awarded contracts for providing services,
procuring goods or supplies, or any other related action
which is required, suggested, or otherwise deemed
appropriate in the end product of the consulting services
contract.
The measure also makes technical and grammatical changes.
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State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . According to the author, "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. Account servicing . TIAA-CREF Tuition Financing, Inc.
currently manages the state's Scholarshare program, along with
ten other distinct state-sponsored 529 college savings plans.
ABLE accounts provide similar preferential tax treatment as
Scholarshare accounts; however, investments may not grow as much
as under Scholarshare because distributions support immediate
and ongoing expenses for an individual with disabilities.
Scholarshare will also likely have more enrollees 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'
implementation strategies vary: Nebraska and Iowa will likely
manage accounts for beneficiaries who aren't located in their
states, but Florida's program only applies to its residents.
Ohio manages accounts for both residents and nonresidents, but
charges non-Ohioans higher fees.
3. Necessary ? AB 449 authorized the ABLE Act trust to make and
enter into contracts necessary for the administration of the
ABLE program trust, and engage personnel, including consultants,
actuaries, managers, counsel, and auditors, as necessary for the
purpose of rendering professional, managerial, and technical
assistance and advice. As such, it's unclear whether AB 1553
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contract authorizations are necessary beyond the bill's
disconnection of Public Contract Code provisions that generally
prohibits a consultant from bidding on or being awarded a
follow-on contract based on the product of a previous contract
by that consultant. The Committee may wish to consider whether
AB 1553's contract authorizations are needed.
4. Technical . As currently drafted, AB 449 may allow an
individual whose blindness or disability had onset after age 26
to qualify as an ABLE Act beneficiary. If this is the case,
then Committee staff recommends a technical amendment ensuring
that this requirement applies.
Assembly Actions
Assembly Revenue and Taxation 9-0
Assembly Appropriations 19-0
Assembly Floor 79-0
Support and
Opposition (6/9/16)
Support : State Treasurer John Chiang, The Arc and United
Cerebral Palsy, Financial Services Institute, State Council on
Developmental Disabilities.
Opposition : None received.
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