Amended in Assembly August 17, 2015

Amended in Assembly July 15, 2015

Amended in Senate April 15, 2015

Senate Bill No. 324

Introduced by Senator Pavley

(Coauthor: Senator Beall)

(Coauthors: Assembly Members Dodd and Kim)

(Principal coauthors: Assembly Members Irwin and Wilk)

February 23, 2015

An act to add Sections 17140.4 and 23711.4 to the Revenue and Taxation Code, and to add Chapter 15 (commencing with Section 4875) to Division 4.5 of the Welfare and Institutions Code, relating to taxation, and making an appropriation therefor.

LEGISLATIVE COUNSEL’S DIGEST

SB 324, as amended, Pavley. Income taxation: savings plans: Qualified ABLE Program.

The Personal Income Tax Law and the Corporation Tax Law, in specified conformity with federal income tax laws regarding qualified tuition programs, provide that distributions from a qualified tuition program are generally not included in the income of the donor or the beneficiary, as specified.

Existing federal law, the Stephen Beck Jr., Achieving a Better Life Experience Act of 2014 (ABLE Act), for taxable years beginning on or after January 1, 2015, encourages and 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, as specified.

This bill would conform to these federal income tax law provisions relating to the ABLE Act under the Personal Income Tax Law and the Corporation Tax Law, as provided. The bill would also establish in state government begin delete a Qualified ABLE Program and the ABLE Fund for purposes of implementing the federal ABLE Act. end delete begin insert the ABLE program trust for purposes of implementing the federal ABLE Act. end insert The bill would create the ABLE Act begin delete Board. The bill would authorize the Able Fund to accept moneys from ABLE accounts, to be segregated into the program account and the administrative account. The bill would continuously appropriate funds in the accounts to the board for specified purposes, thereby making an appropriation. end delete begin insert Board and would authorize the board to adopt regulations to implement the program. The bill would create the program fund and the administrative fund, both continuously appropriated funds, thereby making an appropriation. end insert The bill would require the Treasurer to administer the program in compliance with the requirements of the federal ABLE Act.

Vote: majority. Appropriation: yes. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 17140.4 is added to the Revenue and
Taxation Code, to read:

17140.4.  

Section 529A of the Internal Revenue Code, relating
to qualified ABLE programs, added by Section 102 of Division B
of Public Law 113-295, shall apply, except as otherwise provided.

(a) Section 529A of the Internal Revenue Code is modified as
follows:

(1) By substituting the phrase “under this part and Part 11
(commencing with Section 23001)” in lieu of the phrase “under
this subtitle.”

(2) By substituting “Article 2 (commencing with Section
23731)” in lieu of “Section 511.”

(b) A copy of the report required to be filed with the Secretary
of the Treasury under Section 529A(d) of the Internal Revenue
Code, relating to reports, shall be filed with the Franchise Tax
Board at the same time and in the same manner as specified in that
section.

SEC. 2.  

Section 23711.4 is added to the Revenue and Taxation
Code, to read:

23711.4.  

Section 529A of the Internal Revenue Code, relating
to qualified ABLE programs, added by Section 102 of Division B
of Public Law 113-295, shall apply, except as otherwise provided.

(a) Section 529A of the Internal Revenue Code is modified as
follows:

(1) By substituting the phrase “under Part 10 (commencing with
Section 17001) and this part” in lieu of the phrase “under this
subtitle.”

(2) By substituting “Article 2 (commencing with Section
23731)” in lieu of “Section 511.”

(b) A copy of the report required to be filed with the Secretary
of the Treasury under Section 529A(d) of the Internal Revenue
Code, relating to reports, shall be filed with the Franchise Tax
Board at the same time and in the same manner as specified in that
section.

SEC. 3.  

Chapter 15 (commencing with Section 4875) is added
to Division 4.5 of the Welfare and Institutions Code, to read:

 

Chapter  15. Qualified ABLE Program

 

4875.  

For purposes of this chapter:

(a) “ABLE account” or “account” means the account begin delete an eligible
individual makes contributions to end delete begin insert established and owned by a
designated beneficiary end insert pursuant to this chapter for the purpose of
meeting the qualified disability expenses of the designated
beneficiary of the account.

begin delete

(b) “ABLE Fund” or “fund” means the fund established by this
chapter for purposes of implementing the federal ABLE Act.

end delete begin insert

(b) “Administrative fund” means the fund used to administer
this chapter.

end insert begin insert

(c) “Board” means the California ABLE Act Board established
under this chapter.

end insert begin insert

(d) “California ABLE Program Trust” or “ABLE program
trust” means the trust created pursuant to this chapter.

end insert begin delete

(c)

end delete

begin insert (e) end insert  “Designated beneficiary” means the eligible individual who
established an ABLE account and is the owner of the account.

begin delete

(d)

end delete

begin insert (f) end insert  “Eligible individual” means an individual who is eligible
under the program for a taxable year if during that taxable year begin delete all end delete
begin insert both end insert of the following criteria are met:

(1) The individual is entitled to benefits based on blindness or
disability under Title II or XVI of the federal Social Security Act,
and that blindness or disability occurred before the date on which
the individual attained 26 years of age.

(2) A disability certification, as defined in the federal ABLE
Act, with respect to the individual is filed pursuant to the
requirements set forth in the federal ABLE Act.

begin delete

(e)

end delete

begin insert (g) end insert  “Federal ABLE begin delete act” end delete begin insert Act end insert begin insert ” end insert means the federal Stephen Beck
Jr., Achieving a Better Life Experience Act of 2014.

begin insert

(h) “Investment management” means the functions performed
by a manager contracted to perform functions delegated by the
board.

end insert begin insert

(i) “Investment manager” means a manager contracted to
perform functions delegated by the board.

end insert begin insert

(j) “Program fund” means the program fund established by this
chapter, which shall be held as a separate fund within the
California ABLE Program Trust.

end insert begin delete

(f)

end delete

begin insert (k) end insert  “Qualified ABLE Program” or “program” means the program
established by this chapter to implement the federal ABLE Act
pursuant to Section 529A of the Internal Revenue Code.

begin delete

(g)

end delete

begin insert (l) end insert  “Qualified disability expenses” means any expenses related
to the eligible individual’s blindness or disability that are made
for the benefit of an eligible individual who is the designated
beneficiary, including expenses related to 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 expenses, which are approved by the Secretary
of the Treasury under regulations and consistent with the purposes
of the federal ABLE Act.

4876.  

There is hereby created the begin insert California end insert ABLE Act Board
that consists of the Treasurer, 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 begin delete chair end delete begin insert Chair end insert of the State
Independent Living Council, or their designees. begin insert The Treasurer
shall serve as chair of the board. end insert

4877.  

(a) There is hereby begin delete established in state government a
Qualified ABLE Program and the ABLE Fund for purposes of
implementing the federal ABLE Act pursuant to Section 529A of
the Internal Revenue Code. end delete begin insert created an instrumentality of the State
of California to be known as the California ABLE Program Trust. end insert

(b) The begin delete Qualified end delete begin insert purposes, powers, and duties of the California end insert
ABLE Program begin delete shall be administered by the Treasurer, who shall
be responsible to ensure that the program is administered in
compliance with the requirements of the federal ABLE Act. end delete begin insert Trust
are vested in, and shall be exercised by, the board. end insert

begin delete

(c) (1) The ABLE Fund shall accept moneys from all ABLE
accounts.

(2) The ABLE Act Board shall segregate moneys received by
the ABLE Fund into two accounts, which shall be identified as the
program account and the administrative account.

(A) Notwithstanding Section 13340 of the Government Code,
the program account is hereby continuously appropriated, without
regard to fiscal years, to the ABLE Act Board for the purposes
specified in this act.

(B) Notwithstanding Section 13340 of the Government Code,
the administrative account is hereby continuously appropriated,
without regard to fiscal years, to the ABLE Act Board for
administration of the act. Administrative costs shall not exceed 1
percent of the incoming funds for the fiscal year.

(d) Funding for startup and first-year administrative costs shall
be appropriated from the General Fund in the annual Budget Act.
The board shall repay, within five years, the amount appropriated,
plus interest calculated at the rate earned by the Pooled Money
Investment Account. Necessary administrative costs in future years
shall be paid out of the administrative fund pursuant to
subparagraph (B) of paragraph (2) of subdivision (c).

end delete begin insert

(c) The board, in the capacity of trustee, shall have the power
and authority to do all of the following:

end insert begin insert

(1) Sue and be sued.

end insert begin insert

(2) 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.

end insert begin insert

(3) Adopt a corporate seal and change and amend it from time
to time.

end insert begin insert

(4) Cause moneys in the program fund to be held and invested
and reinvested.

end insert begin insert

(5) Accept any grants, gifts, appropriations, and other moneys
from any unit of federal, state, or local government or any other
person, firm, partnership, or corporation for deposit to the
administrative fund or the program fund. The board may not accept
any contribution by any nonpublic entity, person, firm, partnership,
or corporation that is not designated for a specified designated
beneficiary.

end insert begin insert

(6) Enter into agreements with designated beneficiaries or
eligible individuals to establish and maintain an ABLE account.

end insert begin insert

(7) Make provisions for the payment of costs of administration
and operation of the ABLE program trust.

end insert begin insert

(8) Carry out the duties and obligations of the ABLE program
trust pursuant to this chapter and the federal ABLE Act pursuant
to Section 529A of the Internal Revenue Code and federal
regulations issued pursuant to that code, and have any other
powers as may be reasonably necessary for the effectuation of the
purposes, objectives, and provisions of this chapter.

end insert begin insert

(9) Carry out studies and projections in order to advise
designated beneficiaries or eligible individuals regarding present
and estimated future qualified disability expenses and the levels
of financial participation in the ABLE program trust required in
order to assist designated beneficiaries or eligible individuals.

end insert begin insert

(10) Participate in any other way in any federal, state, or local
governmental program for the benefit of the ABLE program trust.

end insert begin insert

(11) Promulgate, impose, and collect administrative fees and
charges in connection with transactions of the ABLE program
trust, and provide for reasonable service charges, including
penalties for cancellations.

end insert begin insert

(12) Set minimum and maximum investment levels.

end insert begin insert

(13) Administer the funds of the ABLE program trust.

end insert begin insert

(14) Procure insurance against any loss in connection with the
property, assets, or activities of the ABLE program trust.

end insert begin insert

(15) Procure insurance indemnifying any member of the board
from personal loss or liability resulting from a member’s action
or inaction as a member of the board.

end insert begin insert

(d) The Treasurer shall, on behalf of the board, appoint an
executive director, who shall not be a member of the board and
who shall serve at the pleasure of the board. The Treasurer shall
determine the duties of the executive director and other staff as
necessary and set his or her compensation. The board may
authorize the executive director to enter into contracts on behalf
of the board or conduct any business necessary for the efficient
operation of the board.

end insert

begin delete

4878.  

Under the program, a person may make contributions
for a taxable year, for the benefit of an individual who is an eligible
individual for that taxable year, to an ABLE account that is
established for the purpose of meeting the qualified disability
expenses of the designated beneficiary of the account, if all of the
following criteria are met:

(a) The designated beneficiary is limited to one ABLE account
for purposes of this chapter.

(b) The ABLE account is established only for a designated
beneficiary who is a resident of this state.

4879.  

The Treasurer may adopt regulations to implement this
chapter.

4880.  

Notwithstanding any other law, moneys in, contributions
to, and any distribution for qualified disability expenses from, an
ABLE account, not to exceed one hundred thousand dollars
($100,000) shall not count toward determining eligibility for the
Medi-Cal program pursuant to Chapter 7 (commencing with
Section 14000) of Part 3 of Division 9.

end delete begin insert

begin insert 4878. end insert   

(a) The board shall segregate moneys received by the
ABLE program trust into two funds, which shall be identified as
the program fund and the administrative fund.

(1) Notwithstanding Section 13340 of the Government Code,
the program fund is hereby continuously appropriated, without
regard to fiscal years, to the ABLE Act Board for the purposes
specified in this act.

(2) Notwithstanding Section 13340 of the Government Code,
the administrative fund is hereby continuously appropriated,
without regard to fiscal years, to the ABLE Act Board for
administration of the act. Administrative costs shall not exceed 3
percent of the incoming funds for each fiscal year for the first five
fiscal years following the opening of the first ABLE Act account.
After the five-year period, administrative costs shall not exceed 1
percent of the incoming funds for each fiscal year.

(3) Funding for startup and administrative costs for the board
shall be provided in the form of a loan from the General Fund
sufficient to cover the board’s projected administrative costs for
its first two years of implementing the program. Once the loan has
been expended and revenues from the program are sufficient to
cover the board’s ongoing costs, the board shall repay, within five
years, the amount loaned, plus interest calculated at the rate
earned by the Pooled Money Investment Account.

(b) Not later than 30 days after the close of each month, the
investment manager shall place on file for public inspection during
business hours a report with respect to investment performance.
The investment manager shall report the following information,
to the extent applicable, to the board within 30 days following the
end of each month:

(1) The type of investment, name of the issuer, date of maturity,
and the par and dollar amount invested in each security,
investment, and money within the program fund.

(2) The weighted average maturity of the investments within the
program fund.

(3) Any amounts in the program fund that are under the
management of an investment manager.

(4) The market value as of the date of the report and the source
of this valuation for any security within the program fund.

(5) A description of the compliance with the statement of
investment policy.

(c) Moneys in the program fund may be invested or reinvested
by the Treasurer or may be invested in whole or in part under
contract with an investment manager, as determined by the board.

(d) The board shall annually prepare and adopt a written
statement of investment policy. The board shall consider the
statement of investment policy and any changes in the investment
policy at a public hearing. The board shall approve the investment
management entity or entities consistent with subdivision (c).

(e) Transfers may be made from the program fund to the
administrative fund for the purpose of paying operating costs
associated with administering the ABLE program trust and as
required by this chapter. All costs of administration of the ABLE
program trust shall be paid out of the administrative fund.

(f) All moneys paid by designated beneficiaries or eligible
individuals in connection with ABLE accounts shall be deposited
as received into the program fund, and shall be promptly invested
and accounted for separately. Deposits and interest thereon
accumulated on behalf of designated beneficiaries in the program
fund of the ABLE program trust may be used for qualified disability
expenses.

(g) The board shall maintain separate accounting for each
designated beneficiary.

(h) Any designated beneficiary may, directly or indirectly, direct
the investment of any contributions to his or her ABLE account,
or any earnings thereon, no more than two times in any calendar
year.

(i) The assets of the trust, including the program fund, shall at
all times be preserved, invested, and expended solely and only for
the purposes of the trust and shall be held in trust for the
designated beneficiaries and no property rights therein shall exist
in favor of the state. The assets shall not be transferred or used
by the state for any purposes other than the purposes of the trust
and consistent with the provisions of the federal ABLE Act.

end insert begin insert

begin insert 4879. end insert   

(a) Under the program, a person may make contributions
for a taxable year, for the benefit of an individual who is an eligible
individual for that taxable year, to an ABLE account that is
established for the purpose of meeting the qualified disability
expenses of the designated beneficiary of the account if both of
the following criteria are met:

(1) The designated beneficiary is limited to one ABLE account
for purposes of this chapter.

(2) The ABLE account is established only for a designated
beneficiary who is a resident of this state.

(b) A contribution to any ABLE account shall not be accepted
unless one of the following conditions is satisfied:

(1) The contribution is in cash.

(2) Except in the case of contributions under Section
529A(c)(1)(C) of the Internal Revenue Code, if the contribution
to an ABLE account would result in aggregate contributions from
all contributors to the ABLE account for the taxable year exceeding
the amount in effect under Section 2503(b) of the Internal Revenue
Code for the calendar year in which the taxable year begins.

(c) The designated beneficiary shall retain ownership of all
contributions made to the designated beneficiary’s ABLE account
to the date of utilization for qualified disability expenses, and all
interest derived from the investment of the contributions to the
designated beneficiary’s ABLE account shall be deemed to be held
in the ABLE program trust for the benefit of the designated
beneficiary. Neither the contributions, nor any interest derived
therefrom, may be pledged as collateral for any loan.

(d) The board shall develop adequate safeguards to prevent
aggregate contributions on behalf of a designated beneficiary in
excess of the maximum contribution limits necessary to provide
for the qualified disability expenses of the designated beneficiary.
For purposes of this subdivision, aggregate contributions include
contributions under any prior qualified ABLE program of any
state or agency or instrumentality thereof.

end insert begin insert

begin insert 4880. end insert   

Notwithstanding any other law, moneys in, contributions
to, and any distribution for qualified disability expenses from, an
ABLE account, not to exceed one hundred thousand dollars
($100,000), shall not count toward determining eligibility for a
state or local means-tested program.

end insert begin insert

begin insert 4881. end insert   

(a) The board shall provide an annual listing of
distributions to individuals with respect to an interest in an ABLE
account to the Franchise Tax Board at a time and in a manner
and form as specified by the Franchise Tax Board. The taxpayers’
identification numbers obtained in connection with an ABLE
account shall be used exclusively for state and federal tax
administration purposes.

(b) The board shall make a report to the appropriate individual
of any distribution to any individual with respect to an interest in
an ABLE account, at a time and in a form and manner as required
by the Franchise Tax Board.

(c) The board shall report annually to each designated
beneficiary all of the following:

(1) The value of the designated beneficiary’s account.

(2) The interest earned thereon.

(3) The rate of return of the investments in the designated
beneficiary’s account for that reporting period.

(4) Information on investments and qualified disability expenses
that designated beneficiaries can use to set savings goals and
contribution amounts.

(d) The board shall provide a means for designated beneficiaries
to express concerns or comments regarding the ABLE program
trust and any information required to be reported by this section.

end insert begin insert

begin insert 4882. end insert   

(a) The board shall adopt regulations as it deems
necessary to implement this chapter consistent with the federal
Internal Revenue Code and regulations issued pursuant to that
code to ensure that this program meets all criteria for federal
tax-exempt benefits.

(b) The board may adopt regulations to implement this chapter
as emergency regulations in accordance with the rulemaking
provisions of the Administrative Procedure Act (Chapter 3.5
(commencing with Section 11340) of Part 1 of Division 3 of Title
2 of the Government Code). The adoption of the regulations shall
be deemed to be an emergency and necessary for the immediate
preservation of the public peace, health and safety, or general
welfare.

end insert begin insert

begin insert 4883. end insert   

This act shall be construed liberally in order to effectuate
its legislative intent. The purposes of this act and all of its
provisions with respect to powers granted shall be broadly
interpreted to effectuate the intent and purposes of the federal
ABLE Act and not as a limitation of those powers.

end insert begin insert

begin insert 4884. end insert   

The board shall market this program to residents of the
State of California to the extent funds are available to do so.

end insert