BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SJR 18 HEARING: 5/9/12
AUTHOR: Pavley FISCAL: No
VERSION: 2/23/12 TAX LEVY: No
CONSULTANT: Phan
INDIVIDUALS WITH DISABILITIES: TAX EXEMPT ACCOUNTS
Urges the President and Congress to immediately enact the
Achieving a Better Life Experience Act of 2011 (ABLE Act).
Background and Existing Law
I. 529 Savings Plans. Federal and state governments
provide tax incentives and subsidies 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 programs,
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 interest from a QTP is
included in the gross income of a contributor to, or a
beneficiary of, a QTP unless such earnings exceed the
qualified higher education expenses. Any person, in
addition to the beneficiary of the savings, may make
contributions to this savings account. Contributions made
to a 529 Savings Plans are not deductible. California's
529 Savings Plan is the Golden State Scholarshare Savings
Trust (Scholarshare).
II. The Achieving a Better Life Experience Act (ABLE Act of
2011). Currently, there are no tax-benefited savings
options available for families to save for the needs of a
person with disabilities. The ABLE Act, pending in
Congress, authorizes the creation of tax-exempt accounts -
similar to 529 Savings Plans - to benefit people with
SJR 18 - 2/23/12 - Page 2
disabilities. The ABLE Act defines a person with a
disability as someone who is blind or has a medically
determinable physical or mental impairment, which results
in marked and severe functional limitations, and which can
be expected to result in death or lasts for a continuous
period of not less than 12 months.
The ABLE Act exempts federal taxation on the interest of
funds held in an ABLE account. Individual states 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. The ABLE Act
allows families and individuals to build savings for
certain expenses of a beneficiary with disabilities and has
no age requirement on beneficiaries.
Assets in the account are allowed to accrue interest
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. These expenses
include education, housing, transportation, employment
support, health, assistive technology, and other federally
approved expenses.
ABLE Act accounts 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 are disregarded in
determining eligibility for federally means-tested
programs, if funds are spent for qualified expenses.
Similar to Medicaid trusts, funds remaining in the ABLE
account at an individual's death are used to "pay-back" the
state Medicaid program, up to the value of services
provided to the individual during life.
The Secretary of the Treasury must report annually to
Congress on the usage of the ABLE accounts.
Senate Joint Resolution 31 (Pavley, 2010) urged Congress to
pass the ABLE Act of 2009, which is nearly identical to the
ABLE Act of 2011. SJR 31 passed unanimously in the Senate
Health Committee, Assembly Human Services Committee, Senate
Floor, and Assembly Floor, and was chaptered in 2010. The
ABLE Act of 2009 failed to pass in Congress.
SJR 18 - 2/23/12 - Page 3
Proposed Law
Senate Joint Resolution 18 makes 9 findings related to the
ABLE Act's benefits to disabled people and their family.
Based on these findings, SJR 18 urges the President and the
Congress of the United States to immediately enact the ABLE
Act of 2011. The Secretary of the Senate must transmit
copies of this resolution to the President and Vice
President of the United States, to the President pro
Tempore of the United States Senate, to the Speaker of the
House of Representatives, to each Senator and
Representative from California in the Congress of the
United States, and to the author for appropriate
distribution.
State Revenue Impact
No estimate.
Comments
Purpose of the bill . While federal law allows students to
accrue interest on QTP savings accounts tax-free, people
with disabilities are not authorized to participate under
this exemption. SJR 18 urges Congress to approve the ABLE
Act, which would expand this exemption to people with
disabilities.
The federal government incentivizes students to save
because students have educational costs but have to split
their time between school and work, making it hard for them
to save money. Similarly, people with certain disabilities
have high medical costs but may not be able to work full
time, or at all, because of their disability. The 529
Savings Plan should be expanded to include people with
disabilities, who may face even more financial challenges
than students.
Because the ABLE Act of 2009 failed to pass in Congress, it
created a need for state legislatures to urge Congress to
pass the ABLE Act of 2011 in this legislative session.
Expanded participation in a tax-free treatment of QTP
SJR 18 - 2/23/12 - Page 4
savings accounts provides friends, families, caretakers,
and people with disabilities the opportunity to keep more
savings, which can help provide needed financial security
and planning for the future. The government would also not
have to pay for expensive medical and support services for
disabled people with financial provisions.
Support and Opposition (5/3/12)
Support : Association of Regional Center Agencies (ARCA);
The Arc and United Cerebral Palsy in California; PAR 4
Kids' Sake.
Opposition : Unknown.