BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 324| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- UNFINISHED BUSINESS Bill No: SB 324 Author: Pavley (D), et al. Amended: 9/4/15 Vote: 21 SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 4/8/15 AYES: Hertzberg, Nguyen, Bates, Beall, Hernandez, Lara, Pavley SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/28/15 AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen SENATE FLOOR: 40-0, 6/1/15 AYES: Allen, Anderson, Bates, Beall, Berryhill, Block, Cannella, De León, Fuller, Gaines, Galgiani, Glazer, Hall, Hancock, Hernandez, Hertzberg, Hill, Hueso, Huff, Jackson, Lara, Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning, Moorlach, Morrell, Nguyen, Nielsen, Pan, Pavley, Roth, Runner, Stone, Vidak, Wieckowski, Wolk ASSEMBLY FLOOR: 79-0, 9/8/15 - See last page for vote SUBJECT: Income 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). Assembly Amendments create the ABLE Act Board, specify its membership, add provisions necessary for the State Treasurer to implement this bill, and delete items currently in AB 449 (Irwin) to resolve conflicts. SB 324 Page 2 ANALYSIS: Existing law: 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 allowing disabled individuals to receive Medi-Cal benefits. 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)Creates the California ABLE Act Board (Board), consisting of the following, or their designees: SB 324 Page 3 a) The State Treasurer, as Chair, b) The Director of Finance, c) The State Controller, d) The Director of Developmental Services, e) The Chairperson of the State Council on Developmental Disabilities, f) The Director of Rehabilitation, and g) The Chair of the State Independent Living Council. 3)Allows persons to make contributions for a taxable year, for the benefit of eligible individuals, to an ABLE account established for the purpose of meeting that person's qualified disability expenses. a) Limits accounts to one per individual, b) Allows accounts only for residents of the state, c) Requires contributions to be in cash, d) Limits total contributions to a single account for a taxable year at an amount less than the threshold for taxable gifts under federal law ($14,000 in 2015), and e) Provides that the eligible individual retains ownership of all contributions in the account, deems any interest derived from the investments as held in the ABLE program trust for the beneficiary's benefit, and prohibits contributions and interest from being pledged as loan collateral. 4)Requires the Board to: SB 324 Page 4 a) Report to the Franchise Tax Board (FTB) any distribution to any individual with respect to an interest in an ABLE account in a time and manner as required by FTB. b) Report specified information to each designated beneficiary. c) Provide a means for designated beneficiaries to express concerns, or comments regarding the ABLE program trust as well as any other information. 5)Defines several terms, including: a) "Eligible individual" as an individual who is blind or disabled, with onset before 26 years of age. The individual must be entitled to Social Security Disability Insurance benefits, or have a disability certificate on file with the Internal Revenue Service. b) "Qualified services" include education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention, and wellness, financial management and administrative services, legal fees, oversight and monitoring, and funeral and burial services. 6)States that its provisions shall be liberally construed to effectuate its intent. 7)Provides that its provisions only go into effect should AB 449 (Irwin) also be enacted. Background SB 324 Page 5 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, AB 449 (Irwin) contains provisions recently amended out of SB 324, so should these two complementary measures be enacted, California will have a comprehensive statute conforming to the ABLE Act. AB 449 is currently pending action on the Senate Floor. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No According to the Assembly Appropriations Committee, SB 324 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 one-time costs of $500,000, and ongoing costs of approximately $330,000 annually. SUPPORT: (Verified9/8/15) SB 324 Page 6 State Treasurer John Chiang Association of Regional Center Agencies Autism Speaks California Association for Health Services at Home California Disability Services Association California Taxpayers Association Center for Autism and Related Disorders Down Syndrome Society of Orange County National Down Syndrome Society The Arc and United Cerebral Palsy OPPOSITION: (Verified9/8/15) None received ARGUMENTS IN SUPPORT: According to the author, "SB 324 establishes an ABLE Act program, within the State Treasurer's office, that will provide financial tools for individuals with disabilities. The measure also ensures that these ABLE savings accounts are tax free. This new program will ensure that individuals with developmental disabilities and their families will be able to save without fear of losing eligibility for public assistance programs." ASSEMBLY FLOOR: 79-0, 9/8/15 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 SB 324 Page 7 Prepared by:Colin Grinnell / GOV. & F. / (916) 651-4119 9/8/15 21:55:26 **** END ****