BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Elaine K. Alquist, Chair
BILL NO: SJR 31
S
AUTHOR: Alquist
J
AMENDED: As Introduced
R
HEARING DATE: May 5, 2010
CONSULTANT:
3
Chan-Sawin/
1
SUBJECT
Individuals with disabilities: tax exempt accounts
SUMMARY
Urges the President and Congress to immediately enact
currently proposed federal legislation creating tax-exempt
accounts for individuals with developmental disabilities.
CHANGES TO EXISTING LAW
Existing federal law:
Provides incentives and subsidies through the tax system
for various types of savings plans, such as 529 education
savings plans.
Existing state law:
Conforms state law with federal law pertaining to
tax-deferred 529 education savings plans.
This resolution:
Urges the President and Congress to immediately enact the
Achieving a Better Life Experience Act of 2009 (ABLE Act),
proposed in H.R. 1205, which creates tax-exempt accounts
for individuals with developmental disabilities.
FISCAL IMPACT
This resolution is keyed non-fiscal.
Continued---
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BACKGROUND AND DISCUSSION
According to the author, the ABLE Act would create
disability savings accounts for
individuals with disabilities and their families, as a way
to save for future needs that would accrue interest
tax-free.
Many parents recognize that their children with
developmental disabilities may live for many decades beyond
the ability of the parents or other family members to
provide financial assistance and support, and are seeking a
means to ensure their financial security. If available,
savings in ABLE accounts could be drawn upon for a variety
of essential expenses including medical care, education,
employment training, housing, transportation, and other
life necessities.
The federal government currently allows families to save
for their children's future education needs through 529
college tuition savings plans. However, 529 plans do not
meet the needs of families with children with developmental
disabilities. There is currently no savings instrument
specific to this population's needs.
Asset development is one step toward improving economic
self-sufficiency, and the federal legislation's focus on
encouraging asset development will greatly incentivize
people with disabilities to live more productive lives
through earning and saving resources for their future.
The ABLE Act of 2009
The Achieving a Better Life Experience Act of 2009 (also
known as the ABLE Act of 2009) is a bipartisan effort
proposed in H.R. 1205 and S. 493. If enacted, the ABLE Act
would authorize the creation of tax-exempt accounts to
benefit people with disabilities. The ABLE Act will enable
families and individuals to provide funds for building
resources for certain expenses of a beneficiary with
disabilities, such as education, housing, transportation,
employment support, medical care, life necessities,
assistive technology and personal support services, and
other government-approved expenses. There would be no age
requirement on beneficiaries.
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There would be no federal taxation on funds held in an ABLE
account. Individual states would ultimately determine how
the funds are treated for state taxation purposes. Similar
types of accounts like college savings and IRAs have been
exempted from state taxation.
Contributions to the accounts would be made on an after-tax
basis, but assets in the account would be allowed to grow
tax-free and are protected from being taxed as long as they
are used to pay qualified expenses. Qualified expenses
cover a broad range of needs and are flexible enough to be
adapted to a beneficiary's unique needs, and include:
Education, including tuition for preschool through
post-secondary education, materials, books, supplies,
special services, tutors, and special education
services;
Housing, including mortgage or rent payments,
maintenance costs, utility payments, property taxes,
and home modifications;
Transportation, including vehicle purchase or
modification, use of the public transportation system,
and moving expenses;
Employment support necessary to obtain and maintain
employment, including job-related training, assistive
technology, and personal assistance supports;
Medical care, including premium and out-of-pocket
expenses for medical, vision, and dental coverage,
rehabilitation services, equipment, therapy, long-term
services, and other health related expenses;
Life necessities, including clothing,
religious/cultural/recreational activities,
community-based supports, and supplies and equipment
for personal care, communication services and devices;
adaptive equipment; assistive technology; personal
assistance supports; financial management and
administrative services; expenses for oversight,
monitoring, or advocacy; funeral and burial expenses;
and,
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Other approved expenses, as approved through
federal regulations.
Accounts opened under the ABLE Act are meant to supplement,
not supplant benefits from private insurance and
means-tested public benefit programs such as the
Supplemental Security Income (SSI) program or Medicaid.
Savings within the account and distributions from the
account would be disregarded in determining eligibility for
federally means-tested programs, if funds are spent for
qualified expenses.
In a manner similar to the treatment of Medicaid trusts,
funds remaining in the ABLE account at an individual's
death would be used to "pay-back" the state Medicaid
program up to the value of services provided by the
individual during life.
529 savings plans
Federal and state governments provide incentives and
subsidies through the tax system for certain types of
savings plans. The federal government invests more than
$367 billion a year to subsidize savings for retirement,
homeownership and college education. Savings products such
as IRAs, 401(k)s, and 529 savings plans provide tax
benefits for targeted investments.
Under federal law, Section 529 of the Internal Revenue Code
provides tax-exempt status to "qualified tuition programs"
(QTPs), commonly referred to as 529 savings plans. QTPs
are programs established and maintained by a state, an
agency, or an eligible educational institution to purchase
tuition credits or make cash contributions on behalf of
designated beneficiaries. No amount is included in the
gross income of a contributor to, or a beneficiary of, a
QTP with respect to any distribution from, or earnings
under, such a program, except to the extent such
distributions exceed qualified higher education expenses.
Contributions made to a 529 savings plan are not
deductible. California's 529 savings plan is the Golden
State Scholarshare Savings Trust (Scholarshare).
A unique characteristic of 529 savings plans is that any
person, besides the beneficiary, may make contributions.
ABLE accounts would also share this characteristic,
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allowing families to save for the needs of their loved ones
with developmental disabilities. Currently, there are no
tax-benefited savings options available for families to
save for the needs of a person with disabilities.
Related bills
SB 323 (Oropeza) authorizes a taxpayer to direct any
portion of their personal income tax refunds into a 529
savings account. Held in Assembly Appropriations
Committee.
AB 529 (Blumenfield) would, for taxable years beginning on
or after January 1, 2010, authorize a deduction under that
law for the amount, not to exceed $5,000 or $2,500, as
specified, contributed to Scholarshare during the taxable
year. Failed passage in Assembly Revenue and Taxation
Committee.
Prior legislation
SB 643 (Florez) of 2007 would allow a deduction for
contributions made by a qualified taxpayer to a QTP and
require the board overseeing Scholarshare to make a
one-time contribution to certain qualified tuition
programs. Failed passage in Senate Revenue and Taxation
Committee.
AB 819 (Runner) of 2007 was similar to SB 643 (Florez) of
2007 in regard to allowing a deduction for contributions
made by a qualified taxpayer to certain QTPs. Failed
passage in Assembly Revenue and Taxation Committee.
SB 30 (Speier) of 2005 was similar to this bill in regard
to allowing qualified taxpayers a deduction for
contributions made to a QTP. Failed passage in Senate
Revenue and Taxation Committee.
AB 3 (Blakeslee) of 2005 was similar to this bill in regard
to allowing qualified taxpayers a deduction for
contributions made to a QTP. Failed passage in Assembly
Revenue and Taxation Committee.
AJR 6 (Canciamilla), Resolution Chapter 121, Statutes of
2002, urges the President and Congress to enact legislation
similar to the Retirement Security and Savings Act of 2000,
which would have raised contribution limits and expanded
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pension portability among various types of governmental
retirement savings plans.
SB 1262 (O'Connell), Chapter 664, Statutes of 1999, made a
number of technical changes to Scholarshare, including
making the Scholarshare Investment Board responsible for
administering the program instead of the Student Aid
Commission.
AB 2797 (Cardoza), Chapter 322, Statutes of 1998, allows,
by direct conformity to the federal provisions, an
exemption from state taxation and tax-deferred treatment
for contributions to and earnings from any state's
qualified state tuition program.
COMMENTS
Proposed technical and clarifying amendments:
1.Page 1, after the title, strikeout "Introduced by Senator
Alquist" and replace with "Introduced by Senators Pavley
and Alquist"
2.Page 1, line 4, delete "H.R. 1205,"
3.Page 1, line 5, insert after first comma "proposed in
H.R. 1205 and S. 493"
POSITIONS
Arguments in support
The resolution's co-sponsors, the Alliance of Autism
Organizations, an association of 44 non-profit autism
groups throughout California, and the Association of
Regional Center Agencies, write in support, stating that
the federal legislation is important to improving the lives
of people with developmental disabilities.
Support: Alliance of Autism Organizations (co-sponsor)
Association of Regional Center Agencies (co-sponsor)
Oppose: None received
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