[First Reprint]
SENATE COMMITTEE SUBSTITUTE FOR
SENATE, No. 2012
STATE OF NEW JERSEY
ADOPTED JUNE 12, 1997
Sponsored by Senators KYRILLOS, DiFRANCESCO, Kosco, Bubba, Sinagra, Matheussen, Scott and MacInnes
An Act establishing a college savings program and supplementing Titles 18A and 54A of the New Jersey Statutes.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. Sections 1 through 12 of this act establish a college savings plan and shall be known and may be cited as the "New Jersey Better Educational Savings Trust (NJBEST) Act."
2. The Legislature finds and declares that:
a. This State is committed to making world-class education accessible and affordable for all New Jersey students;
b. When families save for college education, they are making an important investment in the future for themselves and the young people of this State;
c. Incentives are needed to encourage families to save for college education;
d. The "Small Business Job Protection Act of 1996," Pub.L.104-188, amended the federal Internal Revenue Code to provide for favorable tax treatment for qualified college savings programs and participants in the programs; and
e. In addition to favorable federal tax treatment for a college savings program and its participants, it is desirable to provide favorable State tax treatment, as a special incentive for student beneficiaries to attend college in this State.
3. As used in this act:
"Account" means an individual trust account or savings account established in accordance with this act;
"Authority" means the New Jersey Higher Education Assistance Authority;
"Contributor" means the person or organization contributing to and maintaining an account and having the right to withdraw funds from the account before the account is disbursed to or for the benefit of the designated beneficiary;
"Designated beneficiary" means: a. the individual designated at the time the account is opened as the individual whose higher education expenses are expected to be paid from the account; b. the replacement beneficiary if the change in designated beneficiary would not result in a distribution that is included in federal gross income under section 529 of the federal Internal Revenue Code of 1986, 26 U.S.C.§529; and c. in the case of an interest in the program purchased by a state or local government or an organization described in paragraph (3) of subsection (c) of section 501 of the federal Internal Revenue Code of 1986, 26 U.S.C.§501 and exempt from taxation under subsection (a) of section 501 of the federal Internal Revenue Code of 1986, 26 U.S.C.§501, as a part of a scholarship program operated by the government or organization, the individual receiving the interest as a scholarship;
"Higher education institution" means an eligible educational institution as defined in or for purposes of section 529 of the federal Internal Revenue Code of 1986, 26 U.S.C.§529. Higher education institution shall include a proprietary institution if expenses for tuition at the institution would be considered qualified higher education expenses under section 529 of the federal Internal Revenue Code of 1986, 26 U.S.C.§529, but only for degree granting programs licensed or approved by the Commission on Higher Education or for other proprietary institutions as determined by the authority;
"Investment Manager" means the Division of Investment in the Department of the Treasury or the private entities authorized to do business in this State that may be designated by the authority to invest the funds of the trust pursuant to the terms of this act;
"Member of the family" means a member of the family as defined in or for purposes of section 529 of the federal Internal Revenue Code of 1986, 26 U.S.C.§529;
"Nonqualified withdrawal" means a withdrawal from an account other than: a. a qualified withdrawal; b. a withdrawal made as the result of the death or disability of the designated beneficiary of an account; c. a withdrawal made on account of a scholarship (or allowance or payment described in subparagraphs (B) or (C) of paragraph (1) of subsection (d) of section 135 of the federal Internal Revenue Code of 1986, 26 U.S.C.§135) received by the designated beneficiary, but only to the extent of the amount of that scholarship, allowance or payment; d. a rollover or change in designated beneficiary which would not result in a distribution includible in federal gross income under section 529 of the federal Internal Revenue Code of 1986, 26 U.S.C.§529; or e. any other withdrawal if the failure of the program to impose a more than de minimis penalty on the withdrawal would cause the program not to be a qualified State tuition program under section 529 of the federal Internal Revenue Code of 1986, 26 U.S.C.§529;
"Program" means the "New Jersey Better Educational Savings Trust (NJBEST) Program" established pursuant to this act;
"Qualified higher education expenses" means expenses described in paragraph (3) of subsection (e) of section 529 of the federal Internal Revenue Code of 1986, 26 U.S.C.§529 incurred in connection with the enrollment of a designated beneficiary at a higher education institution;
"Qualified withdrawal" means a withdrawal from an account to pay the qualified higher education expenses of the designated beneficiary of the account; but a withdrawal shall not be considered a qualified withdrawal if the failure of the program to impose a more than de minimis penalty on the withdrawal would cause the program not to qualify as a qualified State tuition program under section 529 of the federal Internal Revenue Code of 1986, U.S.C.§529;
"Trust" means the "New Jersey Better Educational Savings Trust" established pursuant to section 4 of this act.
4. There is created within the New Jersey Higher Education Assistance Authority the New Jersey Better Educational Savings (NJBEST) Trust. The trust shall provide a mechanism through which the authority, as trustee, holds accounts established and maintained pursuant to the provisions of this act to finance the cost of qualified higher education expenses.
5. The Office of Student Assistance shall administer the NJBEST Program established in the authority. The authority shall have the power to:
a. serve as trustee of the trust;
b. adopt rules and regulations pursuant to the "Administrative Procedures Act," P.L.1968, c.410 (C.52:14B-1 et seq.), necessary to carry out the provisions of this act;
c. prescribe and provide appropriate forms for participation in the program;
d. select an investment manager and any other contractors needed to manage and market the program;
e. monitor the investment manager and any other contractors by audits and other reports;
f. collect reasonable administrative fees in connection with any contract or transaction relating to the program;
g. impose penalties for nonqualified withdrawals;
h. take all actions required so that the program is treated as a qualified State tuition program under section 529 of the federal Internal Revenue Code of 1986, 26 U.S.C.§529; and
i. perform any other acts which may be deemed necessary or appropriate to carry out the objects and purposes of this act.
6. Neither the members of the authority, nor any officer or employee of the authority shall be liable personally for the debts, liabilities or obligations of the program established pursuant to this act.
7. a. The authority shall select an investment manager or managers to invest the funds of the trust or the funds in accounts. In making this selection, 1any investment manager shall be subject to the "prudent person" standard of care applicable to the Division of Investment in the Department of the Treasury pursuant to subsection b. of section 11 of P.L.1950, c.270 (C.52:18A-89), and1 the authority shall 1[promote an investment policy, the objectives of which include minimization of risk, liquidity, and maximization of yield] consider the impact of fees and costs imposed by the manager or managers on yield to contributors1 .
b. The authority may select more than one investment manager and investment instrument for the program if it is in the best interest of contributors and will not interfere with the administration of the program.
c. The authority may provide a contributor with a choice of investment managers or investment instruments or both for the program if both of the following conditions exist:
(1) the federal Internal Revenue Service has provided guidance that providing a contributor with a choice of investment managers or instruments under a State tuition program will not cause the program to fail to qualify for favorable tax treatment under section 529 of the federal Internal Revenue Code of 1986, 26 U.S.C. §529; and
(2) the authority concludes that a choice of 1investment managers or of1 investment instruments is in the best interest of contributors and will not interfere with the administration of the program.
d. If the authority terminates the designation of an investment manager to hold accounts, and accounts must be moved from that investment manager to another investment manager, the authority shall select the investment manager and type of investment instrument to which the balance of the account is moved, unless the federal Internal Revenue Service provides guidance that allowing the contributor to select among several investment managers or investment instruments that have been selected by the authority would not cause a program to cease to be a qualified State tuition program for the purposes of section 529 of the federal Internal Revenue Code, 26 U.S.C. §529.
8. a. The program shall be operated as a trust through the use of accounts for designated beneficiaries. An account may be opened by any person who desires to save to pay the qualified higher education expenses of an individual by satisfying each of the following requirements:
(1) completing an application in the form prescribed by the authority;
(2) paying the one-time application fee established by the authority;
(3) making the minimum contribution required by the authority for opening an account;
(4) designating the account or accounts to be opened; and
(5) in the case of an account to which subsection a. of section 11 of this act would apply, demonstrating to the satisfaction of the authority that either the contributor, if an individual, or the designated beneficiary is a New Jersey resident. The requirement of New Jersey residency for either the contributor or the designated beneficiary would not apply to an account to which subsection b. of section 11 of this act would apply unless otherwise determined by the authority;
b. Except as provided under section 9 of this act, only the contributor may make contributions to an account after the account is opened.
c. Contributions to accounts shall be made only in cash, as defined by the authority pursuant to regulations, in accordance with section 529 of the federal Internal Revenue Code of 1986, 26 U.S.C.§529.
d. Contributors may withdraw all or part of the balance from an account on sixty days' notice or a shorter period, as may be authorized by the authority pursuant to regulations.
e. A contributor may change the designated beneficiary of an account or rollover all or a portion of an account to another account if the change or rollover would not result in a distribution includible in gross income under section 529 of the federal Internal Revenue Code of 1986, 26 U.S.C.§529, in accordance with procedures established by the authority.
f. In the case of any nonqualified withdrawal, a penalty at a level established by the authority and sufficient to be considered a more than de minimis penalty for purposes of section 529 of the federal Internal Revenue Code of 1986, 26 U.S.C.§529, shall be withheld and paid to the authority for use in operating and marketing the program. The authority may elect not to impose a penalty if that section ceases to include a provision requiring more than de minimis penalties for a program to qualify as a qualified State tuition program.
g. If a contributor makes a nonqualified withdrawal and a penalty amount is not withheld pursuant to subsection f. of this section or the amount withheld is less than the amount required to be withheld under that subsection, the contributor shall pay the unpaid portion of the penalty to the authority at the same time that the contributor files a State income tax return for the taxable year of the withdrawal, or if the contributor does not file a return, the unpaid portion of the penalty shall be paid on or before the due date for the filing of that income tax return.
h. Each account shall be maintained separately from each other account under the program.
i. Separate records and accounting shall be maintained for each account for each designated beneficiary.
j. A contributor to or designated beneficiary of any account shall not direct the investment of any contributions to an account or the earnings from the account, except as permitted under section 529 of the federal Internal Revenue Code of 1986, 26 U.S.C.§529.
k. A contributor or a designated beneficiary shall not use an interest in an account as security for a loan. Any pledge of an interest in an account is of no force and effect.
l. The maximum contribution for any designated beneficiary shall be determined by the authority pursuant to regulations, in accordance with section 529 of the federal Internal Revenue Code of 1986, 26 U.S.C.§529.
m. Statements, reports on distributions and information returns relating to accounts shall be prepared, distributed, and filed to the extent required by section 529 of the federal Internal Revenue Code of 1986, 26 U.S.C.§529, or regulations issued thereunder.
n. The authority may charge, impose and collect reasonable administrative fees and service charges in connection with any agreement, contract or transaction relating to the program. These fees and charges may be imposed directly on contributors or may be taken as a percentage of the investment earnings on accounts.
9. a. An amount of no less than $500 shall be provided by the State for the qualified higher education expenses of a designated beneficiary at the time of a qualified withdrawal provided that:
(1) the contributor demonstrates, to the satisfaction of the authority, that the contributor participated in the program for at least four years by making a qualifying minimum initial deposit or qualifying minimum annual contributions, or both, as shall be determined by the authority, for a designated beneficiary;
(2) the designated beneficiary demonstrates, to the satisfaction of the authority, attendance or enrollment in a higher education institution in this State, at the time of initial attendance or enrollment in the higher education institution; and
(3) either the contributor, if an individual, or the designated beneficiary demonstrates, to the satisfaction of the authority, that the contributor or designated beneficiary is a New Jersey resident.
b. The amount provided under subsection a. of this section shall meet the requirements of a qualified scholarship within the meaning of section 117 of the federal Internal Revenue Code of 1986, 26 U.S.C.§117, for a designated beneficiary satisfying the requirements of subsection a. of this section.
c. A designated beneficiary shall not receive more than one State scholarship provided pursuant to subsection a. of this section.
10. Annually, the authority shall determine a dollar amount of an account, which shall not be less than $25,000, which shall not be considered in evaluating the financial needs of a student enrolled in an institution of higher education located in the State of New Jersey, or be deemed a financial resource or a form of financial aid or assistance to a student, for purposes of determining the eligibility of a student for any scholarship, grant, or monetary assistance awarded by the State; nor shall the amount of any account as determined by the authority provided for a designated beneficiary under this act reduce the amount of any scholarship grant or monetary assistance which the student is entitled to be awarded by the State.
11. a. If the investment manager is the Division of Investment in the Department of the Treasury, in order to assure the availability of principal of any amount contributed under this act, there shall be paid to the authority for deposit in the trust, at the time of distribution, subject to appropriation, such sum, if any, as shall be certified by the chairman of the authority as necessary to provide that amount at the time of distribution. The chairman shall make and deliver to the Governor, or his designee, the certificate stating the sums, if any, required to make available in the trust the amount aforesaid, and the sums so certified shall be appropriated and paid to the authority during the then current State fiscal year.
b. If the investment manager is a private entity, the investment of the principal of any amount contributed under this act shall be 1fully1 insured by the Federal Deposit Insurance Corporation or other similar insurer backed by the full faith and credit of the United States 1[up to the maximum amount of insurance normally provided by the insurer]. No account balance shall exceed $100,000. No investment is permitted in derivatives of eligible securities, and any investment must be designed to balance prospective payments according to the guidelines established1.
12. a. Nothing in this act shall be construed to:
(1) guarantee that a designated beneficiary will be admitted to a higher education institution or be allowed to continue enrollment at or graduate from a higher education institution after admission;
(2) establish State residency for a person merely because the person is a designated beneficiary; or
(3) guarantee that amounts saved pursuant to the program will be sufficient to cover the qualified higher education expenses of a designated beneficiary.
b. Nothing in this act establishes any obligation of this State or any agency or instrumentality of this State to guarantee for the benefit of any contributor or designated beneficiary any of the following:
(1) the rate of interest or other return on any account; or
(2) the payment of interest or other return on any account.
c. Nothing in this act establishes any obligation or liability of this State or any agency or instrumentality of this State with respect to any federal or State tax liability of any contributor or designated beneficiary in this program.
d. Under regulations promulgated by the authority, every contract and application that may be used in connection with a contribution to an account shall clearly indicate that the account is not insured by this State nor is the investment return guaranteed by this State.
13. a. Gross income shall not include the earnings on or distribution from an individual trust account or savings account established pursuant to the "New Jersey Better Educational Savings Trust Program" established pursuant to P.L. , c. (C. )(now pending before the Legislature as this bill).
b. "Distribution" means a withdrawal which pays the designated beneficiary's qualified higher education expenses described in section 529 of the federal Internal Revenue Code of 1986, 26 U.S.C.§529 or which represents contributions net of earnings thereon.
14. If the Congress of the United States enacts legislation that exempts educational savings accounts from federal income taxation, sections 9 and 10 of this act shall apply with respect to such educational savings accounts as if they were accounts established under this act and the beneficiaries of the accounts were designated beneficiaries subject to the approval of the New Jersey Higher Education Assistance Authority.
15. This act shall take effect immediately.
"New Jersey Better Educational Savings Trust (NJBEST) Act."