Existing federal law, the Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014 (ABLE Act), 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.

Existing law conforms 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. Existing law defines eligible individual for these purposes. Existing law establishes in state government the ABLE program trust for purposes of implementing the federal ABLE Act. Existing law also establishes the ABLE Act Board and authorizes the board to adopt regulations to implement the program.

The existing State Contract Act, in connection with contracts entered into by any state agency for services to be rendered to the state, prohibits a person, firm, or subsidiary thereof that has been awarded a consulting services contract from submitting a bid for, or being awarded a contract for, the provision of services, the procurement of goods or supplies, or any other related action that is required, suggested, or otherwise deemed appropriate in the end product of the consulting services contract. A willful violation of these provisions is a misdemeanor, under other provisions.

This bill would modify the definition of eligible individual. The bill would also exempt the ABLE Act Board from the above prohibition in the State Contract Act for a contract with a program consultant for the qualified ABLE program but would require such a contract to be publicly disclosed in a manner specified by the board prior to entering into the contract.

This bill would declare that it is to take effect immediately as an urgency statute.

Existing federal law, the Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014 (ABLE Act), 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.

Existing law conforms 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. Existing law defines eligible individual for these purposes. Existing law establishes in state government the ABLE program trust for purposes of implementing the federal ABLE Act. Existing law also establishes the ABLE Act Board and authorizes the board to adopt regulations to implement the program.

The existing State Contract Act, in connection with contracts entered into by any state agency for services to be rendered to the state, prohibits a person, firm, or subsidiary thereof that has been awarded a consulting services contract from submitting a bid for, or being awarded a contract for, the provision of services, the procurement of goods or supplies, or any other related action that is required, suggested, or otherwise deemed appropriate in the end product of the consulting services contract. A willful violation of these provisions is a misdemeanor, under other provisions.

This bill would modify the definition of eligible individual. The bill would also exempt the ABLE Act Board from the above prohibition in the State Contract Act for a contract with a program consultant for the qualified ABLE program but would require such a contract to be publicly disclosed in a manner specified by the board prior to entering into the contract.

This bill would declare that it is to take effect immediately as an urgency statute.

Existing federal law, the Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014 (ABLE Act), 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.

Existing law conforms 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. Existing law defines eligible individual for these purposes. Existing law establishes in state government the ABLE program trust for purposes of implementing the federal ABLE Act. Existing law also establishes the ABLE Act Board and authorizes the board to adopt regulations to implement the program.

The existing State Contract Act, in connection with contracts entered into by any state agency for services to be rendered to the state, prohibits a person, firm, or subsidiary thereof that has been awarded a consulting services contract from submitting a bid for, or being awarded a contract for, the provision of services, the procurement of goods or supplies, or any other related action that is required, suggested, or otherwise deemed appropriate in the end product of the consulting services contract. A willful violation of these provisions is a misdemeanor, under other provisions.

This bill would modify the definition of eligible individual. The bill would also exempt the ABLE Act Board from the above prohibition in the State Contract Act for a contract with an account servicer a program consultant for the qualified ABLE program but would require such a contract to be publicly disclosed in a manner specified by the board prior to entering into the contract.

Existing federal law, the Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014 (ABLE Act), 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.

Existing law conforms 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. Existing law defines eligible individual for these purposes. Existing law establishes in state government the ABLE program trust for purposes of implementing the federal ABLE Act. Existing law also establishes the ABLE Act Board and authorizes the board to adopt regulations to implement the program.

This bill would authorize the ABLE Act Board to enter into a multistate contract with an account servicer in order to implement these provisions and to enter into a long-term contract with an account servicer, as provided. modify the definition of eligible individual. The bill would also exempt the ABLE Act Board from the above prohibition in the State Contract Act for a contract with an account servicer but would require such a contract to be publicly disclosed in a manner specified by the board prior to entering into the contract.

Existing state law defines and regulates consumer credit reports and authorizes a consumer to place a security freeze on his or her credit report by making a request in writing by mail to a consumer credit reporting agency. Existing state law requires a consumer credit reporting agency to place the security freeze on the consumers credit report no later than 3 business days after receiving the consumers request.

This bill would additionally authorize a representative of a protected person, defined as an individual who is under 16 years of age at the time a request for the placement of a security freeze is made or an incapacitated person or a protected individual for whom a guardian or conservator has been appointed, to place a security freeze on the credit report of the protected person by making a request in writing by mail to a consumer credit reporting agency. However, irrespective of whether the security freeze was requested by a representative, the bill would authorize an individual who is under 16 years of age or an individual over 16 years of age for whom a security freeze was requested by a representative to act on behalf of himself or herself with respect to temporarily lifting the freeze for a specific party or removing the freeze.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 1553

Author:(Irwin)

As Amended Ver:August 10, 2016

2/3 vote. Urgency

Original Committee Reference: REV. & TAX.

SUMMARY: Provides that a provision of the State Contract Act, prohibiting the recipient of a consulting services contract from bidding on a subsequent contract the recipient requires or suggests, does not apply to a contract between the California Achieving a Better Life Experience Act Board (ABLE Board) and a program consultant for the ABLE program.

The Senate amendments:

1. Clarify that an "eligible individual" under the ABLE program means an individual whose blindness or disability had onset before age 26.
2. Recast provisions of this bill that exempt the ABLE Board from a provision of the State Contract Act, as specified.
3. Require any contract with a program consultant that would have been otherwise prohibited under the State Contract Act to be publicly disclosed, prior to entering the contract, in a manner specified by the ABLE Board.
4. Provide that this bill goes into immediate effect as an urgency statute.

EXISTING FEDERAL LAW:

1. Enacts the Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014 (ABLE Act), that 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.
2. Provides that contributions to an ABLE account are not deductible for federal income tax purposes, and aggregate contributions during a taxable year may not exceed the annual gift tax exclusion amount. For 2016, the annual gift tax exclusion amount is $14,000.
3. Provides that distributions from an ABLE account are excludable from income to the extent the total distribution does not exceed the qualified disability expenses of the beneficiary during the taxable year.
4. Defines "qualified disability expenses" as any expenses related to an individual's blindness or disability, including 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 approved expenses.
5. Specifies that the qualified ABLE program must limit a designated beneficiary to one ABLE account.
6. Defines an "eligible individual" as an individual who meets the requirements relating to blindness or disability under the Supplemental Security Income (SSI) program. Generally, an individual must be blind or disabled prior to age 26.

EXISTING STATE LAW

1. Conforms to federal income tax law provisions relating to the ABLE Act under the Personal Income Tax (PIT) Law and the Corporation Tax (CT) Law, allowing the creation of ABLE accounts for beneficiaries in California and ensuring that ABLE account earnings and distributions for qualified disability expenses are not included in the eligible individual's income for state tax purposes.
2. Establishes the California ABLE Program Trust (Trust) to implement the federal ABLE Act.
3. Establishes the ABLE Board, chaired by the Treasurer and consisting of 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 Chair of the State Independent Living Council.
4. Authorizes the ABLE Board, in exercising the purposes, powers, and duties of the Trust, amongst other duties, to do the following:
   1. Make and enter into contracts necessary for the administration of the Trust;
   2. Enter into agreements with designated beneficiaries or eligible individuals to establish and maintain an ABLE account;
   3. Set minimum and maximum investment levels; and,
   4. Administer the funds of the Trust.
5. Requires the Treasurer to appoint an executive director who may be authorized by the ABLE Board to enter into contracts on behalf of the ABLE Board or conduct any business necessary for the efficient operation of the ABLE Board.
6. Requires the ABLE Board to segregate moneys received by the Trust into two funds, a program fund and an administrative fund.
7. Authorizes moneys in the program fund to be invested or reinvested by the Treasurer or under contract with an investment manager determined by the ABLE Board.
8. Requires the ABLE Board annually to prepare and adopt a written statement of investment policy in a public hearing, and the investment manager to report publicly detailed investment performance information no later than 30 days after the close of each month.
9. Specifies that administrative costs will be available to the ABLE Board upon appropriation and are capped at 3% of incoming funds each fiscal year for the first five fiscal years, and at 1% of incoming funds each fiscal year thereafter.
10. Specifies that funding for startup and administrative costs for the ABLE Board will be loaned from the General Fund for the first two years, and will be repaid when revenues from the program are sufficient to cover the ABLE Board's ongoing costs.

AS PASSED BY THE ASSEMBLY, this bill:

1. Authorized the ABLE Board to enter into a long-term multistate contract with an account servicer.
2. Allowed the account servicer to recoup costs from administering ABLE accounts in the first years of administration.
3. Specified that a provision of the Public Contract Code (PCC), prohibiting the recipient of a consulting services contract from bidding on a subsequent contract the recipient requires or suggests, does not apply.

FISCAL EFFECT: According to the Senate Appropriations Committee, pursuant to Senate Rule 28.8, negligible state costs.

COMMENTS:

1. ABLE Accounts Model Scholarshare Accounts: The California ABLE Act allows Californians with disabilities to access federally recognized ABLE tax-free savings accounts to save for future disability-related expenses. ABLE accounts generally follow the same rules as 529 Qualified Tuition Programs, administered in California as the Golden State Scholarshare College Savings Trust (Scholarshare) – 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 are used for qualified services for the beneficiary and distributions do not exceed the cost of those services.

Both programs are also administered by boards chaired by the State Treasurer with similar authorizing powers. The ABLE Board and Scholarshare Investment Board (SIB) have authority to enter into contracts necessary for administration of their respective trusts. Any investment manager contracted with the ABLE Board or SIB must follow investment level guidelines set by the boards and publicly report detailed investment performance information each month.

1. Implementation of the ABLE Act: The ABLE Board has not yet met in a formal capacity and has not entered into any contracts for administration of the program or beneficiary accounts.

Aside from California, 41 other states have successfully passed ABLE Act legislation. The United States (U.S.) Department of Treasury issued proposed regulations for the federal ABLE Act in June 2015, with states awaiting final guidance for program implementation. As a result, all states are still in the process of developing their ABLE programs, with most states aiming to offer ABLE accounts by 2017.

1. Exemption from the State Contract Act: Scholarshare is currently managed by Teachers Insurance and Annuity Association of America - College Retirement Equities Fund (TIAA-CREF) Tuition Financing, Inc., which operates 10 other distinct state-sponsored 529 college savings plans in addition to California's. Although ABLE accounts provide similar preferential tax treatment as Scholarshare accounts, they may not realize the same level of investment growth because distributions are intended to support immediate and ongoing expenses for an individual with disabilities, such as housing, health, transportation, and personal support services, compared to Scholarshare accounts intended to remain untapped until the beneficiary is ready to enter college. It is also likely that there is a larger beneficiary pool for Scholarshare accounts than for ABLE accounts, allowing better estimation of demand for Scholarshare accounts than ABLE accounts. Accordingly, the State Treasurer believes that entering into a multistate consortium for administration of ABLE accounts may help minimize implementation costs. Other states that have passed ABLE Act legislation are also considering multistate consortiums to administer their trusts.

Existing law authorizes the ABLE Board to enter into contracts necessary for the efficient operation of the Trust. While this bill does not exempt the ABLE Board from existing competitive bid requirements, this bill would exempt any ABLE Board contract with a program consultant for the ABLE program from a provision of the State Contract Act prohibiting "follow-on" contracts in which a recipient of a consulting services contract bids on a subsequent contract it requires or suggests. The intent of this exemption language is to avoid discouraging a potential vendor from bidding on a potential contract to design Trust regulations as he or she would then otherwise be prohibited from subsequently bidding to administer the Trust. Although any contract with a program consultant that would have been otherwise prohibited without the exemption must be publicly disclosed by the ABLE Board prior to entering the contract, this exemption may be premature since the market for program managers is still undetermined.

Analysis Prepared by: Irene Ho / REV. & TAX. / (916) 319-2098 FN: 0004085

 THIRD READING  

Bill No: AB 1553

Author:

:

Vote: 27- Urgency

SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 6/15/16

AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach, Pavley

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

ASSEMBLY FLOOR: 79-0, 5/5/16 (Consent) - See last page for vote

SUBJECT:

SOURCE: State Treasurer John Chiang

DIGEST: This bill modifies the definition of “eligible individual” for purposes of the ABLE (Achieving a Better Life Experience) program, and provides that a section of the Public Contract Code prohibiting certain contracts does not apply to a contract between the ABLE Board and an ABLE Act program consultant.

Senate Floor Amendments of 8/10/16 substitute the term “program consultant for the qualified ABLE program” for “account servicer” for purposes of the Public Contract Code exemption, and insert an urgency clause.

ANALYSIS:

Existing law:

1. Conforms to the Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014, which allows tax-free savings accounts for eligible individuals who became blind or disabled before reaching age 26, and directs states to establish one ABLE account for each eligible individual who is a resident of the state.
2. Creates the ABLE trust with specified powers, as well as an ABLE board with specified membership within the State Treasurer’s Office to administer the program (SB 324, Pavley, Chapter 796, and AB 449, Irwin, Chapter 774, Statutes of 2015).
3. Defines as an “eligible individual” for purposes of the ABLE program an individual both entitled to benefits based on blindness and disability under the Social Security Act, with onset before 26 years of age, and who has a disability certificate filed pursuant to ABLE Act requirements.
4. Allows the ABLE Act Trust to 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.
5. Prohibits, generally, a consultant from bidding on or being awarded a follow-on contract based on the product of a consulting services contract.

This bill:

1. Modifies the eligibility definition to allow an individual whose onset of blindness or disability occurred before age 26, who is either entitled to benefits based on blindness or disability under Title II or XVI of the federal Social Security Act, or has filed a disability certification, as defined in the federal ABLE Act, pursuant to the requirements set forth in the federal ABLE Act.
2. Provides that the general prohibition against awarding a contract to the same consultant who recommended the contract as part of its consulting services does not apply to a contract between the ABLE trust and a program consultant for the qualified ABLE program. This bill requires public disclosure of any contract for which the prohibition would have applied.
3. Makes a technical change.
4. Provides that its provisions take effect immediately to allow ABLE accounts to be accessed at the earliest possible time.

Background

The ABLE Act directed states to establish one ABLE account for each beneficiary who is a resident of the state, and additionally required the Internal Revenue Service (IRS) to issue regulations to implement the program to guide states as they enact legislation creating ABLE accounts. IRS has since issued proposed regulations, updated them, and issued Publication 907: Tax Highlights for Persons with Disabilities, which details ABLE accounts. Comments on the proposed regulations raised concerns regarding costs on states to manage medical records and manage records necessary to verify disability certifications. As a result, the IRS updated guidance to also allow an individual to also qualify as a beneficiary based on a certification, signed under penalty of perjury, that the individual has a condition that meets all of the required elements, and a diagnosis signed by a physician regarding the relevant impairment or impairments. AB 1553 conforms state law to reflect this change in guidance.

Existing law, as added by AB 449 (Irwin, 2015), allows the ABLE Act Trust to 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. AB 1553 disconnects the current prohibition against “follow-on” contracts, which would prohibit a consultant hired to help set up the program from providing consulting services to the program on an ongoing basis.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 8/1/16)

State Treasurer John Chiang

Financial Services Institute

State Council on Developmental Disabilities

The Arc and United Cerebral Palsy

OPPOSITION: (Verified 8/1/16)

None received

ARGUMENTS IN SUPPORT: According to the author, “The California ABLE Act as signed into law by Governor Brown in late 2015 will provide people with disabilities a critical service by allowing them to save money for the future without jeopardizing their disability benefits. The State Treasurer and ABLE Act Board have requested the authority to enter into a multistate, long-term contract with an account service provider in order to successfully implement the ABLE Act in a cost-effective manner. Current statute does not give them this authority. AB 1553 is cleanup language that will allow the successful and effective implementation of AB 449 (Irwin 2015) and SB 324 (Pavley 2015).”

ASSEMBLY FLOOR: 79-0, 5/5/16

AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, 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, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon

NO VOTE RECORDED: Beth Gaines

Prepared by:

8/12/16 13:21:56

**** END ****

 THIRD READING  

Bill No: AB 1553

Author:

:

Vote:

SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 6/15/16

AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach, Pavley

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

ASSEMBLY FLOOR: 79-0, 5/5/16 (Consent) - See last page for vote

SUBJECT:

SOURCE: State Treasurer John Chiang

DIGEST: This bill modifies the definition of “eligible individual” for purposes of the ABLE (Achieving a Better Life Experience) program, and provides that a section of the Public Contract Code prohibiting certain contracts does not apply to a contract between the ABLE Board and an ABLE Act account servicer.

ANALYSIS:

Existing law:

1. Conforms to the Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014, which allows tax-free savings accounts for eligible individuals who became blind or disabled before reaching age 26, and directs states to establish one ABLE account for each eligible individual who is a resident of the state.
2. Creates the ABLE trust with specified powers, as well as an ABLE board with specified membership within the State Treasurer’s Office to administer the program (SB 324, Pavley, Chapter 796, and AB 449, Irwin, Chapter 774, Statutes of 2015).
3. Defines as an “eligible individual” for purposes of the ABLE program an individual both entitled to benefits based on blindness and disability under the Social Security Act, with onset before 26 years of age, and who has a disability certificate filed pursuant to ABLE Act requirements.
4. Allows the ABLE Act Trust to 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.
5. Prohibits, generally, a consultant from bidding on or being awarded a follow-on contract based on the product of a consulting services contract.

This bill:

1. Modifies the eligibility definition to allow an individual whose onset of blindness or disability occurred before age 26, who is either entitled to benefits based on blindness or disability under Title II or XVI of the federal Social Security Act, or has filed a disability certification, as defined in the federal ABLE Act, pursuant to the requirements set forth in the federal ABLE Act.
2. Provides that the general prohibition against awarding a contract to the same consultant who recommended the contract as part of its consulting services does not apply to a contract between the ABLE trust and an account servicer. This bill requires public disclosure of any contract for which the prohibition would have applied.
3. Makes a technical change.

Background

The ABLE Act directed states to establish one ABLE account for each beneficiary who is a resident of the state, and additionally required the Internal Revenue Service (IRS) to issue regulations to implement the program to guide states as they enact legislation creating ABLE accounts. IRS has since issued proposed regulations, updated them, and issued Publication 907: Tax Highlights for Persons with Disabilities, which details ABLE accounts. Comments on the proposed regulations raised concerns regarding costs on states to manage medical records and manage records necessary to verify disability certifications. As a result, the IRS updated guidance to also allow an individual to also qualify as a beneficiary based on a certification, signed under penalty of perjury, that the individual has a condition that meets all of the required elements, and a diagnosis signed by a physician regarding the relevant impairment or impairments. AB 1553 conforms state law to reflect this change in guidance.

Existing law, as added by AB 449 (Irwin, 2015), allows the ABLE Act Trust to 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. AB 1553 disconnects the current prohibition against “follow-on” contracts, which the State Treasurer argues limits the pool of possible ABLE Act fund administrators.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 8/1/16)

State Treasurer John Chiang

Financial Services Institute

State Council on Developmental Disabilities

The Arc and United Cerebral Palsy

OPPOSITION: (Verified 8/1/16)

None received

ARGUMENTS IN SUPPORT: According to the author, “The California ABLE Act as signed into law by Governor Brown in late 2015 will provide people with disabilities a critical service by allowing them to save money for the future without jeopardizing their disability benefits. The State Treasurer and ABLE Act Board have requested the authority to enter into a multistate, long-term contract with an account service provider in order to successfully implement the ABLE Act in a cost-effective manner. Current statute does not give them this authority. AB 1553 is cleanup language that will allow the successful and effective implementation of AB 449 (Irwin 2015) and SB 324 (Pavley 2015).”

ASSEMBLY FLOOR: 79-0, 5/5/16

AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, 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, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon

NO VOTE RECORDED: Beth Gaines

Prepared by:

8/3/16 18:45:39

**** END ****

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Robert M. Hertzberg, Chair

2015 - 2016 Regular

Savings plans: qualified ABLE program

Changes the state’s implementation of Achieving a Better Life Accounts.

Background

California law does not automatically conform to changes to federal tax law, except for specific retirement provisions. Instead, the Legislature must affirmatively conform to federal changes. Conformity legislation is introduced either as individual tax bills to conform to specific federal changes, like the Mortgage Debt Forgiveness Relief Act (AB 1393, Perea, 2014), or as one omnibus bill that provides that state law conforms to federal law as of a specified date, currently January 1, 2015 (AB 154, Ting, 2010).

On December 19, 2014, President Obama signed the Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014 (ABLE), 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 educations savings accounts allowed by Section 529 of the Internal Revenue Code (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 the qualified services. The ABLE Act directed states to establish one ABLE account for each beneficiary who is a resident of the state. The ABLE Act additionally directed the Internal Revenue Service (IRS) to issue regulations to implement the program to guide states as they enact legislation creating ABLE accounts. IRS has since issued proposed regulations, updated them, and issued Publication 907: Tax Highlights for Persons with Disabilities, which details ABLE accounts.

Last year, the Legislature enacted two complementary bills to comprehensively implement ABLE accounts in California, which created the ABLE trust with specified powers, as well as an ABLE board with specified membership within the State Treasurer’s Office to administer the program, among other measures (SB 324, Pavley, and AB 449, Irwin). The ABLE Act Board has not yet formally met, and doesn’t have dedicated staff, but the 2016-17 Governor’s Budget proposed an $850,000 loan from the General Fund to cover the program’s startup costs, which Senate Budget Subcommittee #4 recently approved. California along with other states find themselves at different points in the process of implementing the ABLE Act: Ohio became the first state to implement ABLE accounts on June 2^nd, with Iowa, Nebraska, and Florida likely to follow soon. With California getting ready to implement ABLE accounts, the State Treasurer’s Office wants to change two sections of law implementing the ABLE Act in the state.

Beneficiary Eligibility. When the Legislature enacted the two bills, they required that to be eligible, a beneficiary must be entitled to benefits based on blindness and disability under the Social Security Act, with onset before 26 years of age, and have a disability certificate filed pursuant to ABLE Act requirements. However, responding to comments on the proposed regulations, updated Internal Revenue Service guidance now also allows a beneficiary to qualify on the basis of a certification, signed under penalties of perjury, that the individual has a condition that meets all of the required elements, and that a diagnosis signed by a physician regarding the relevant impairment or impairments have been obtained.

Contracting. AB 449 allowed the ABLE Act Trust to 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.

Proposed Law

Assembly Bill 1553 makes the following changes to the state’s ABLE Act conformity laws as enacted by SB 324 and AB 449:

• Modifies the eligibility definition to allow an individual to qualify as a beneficiary who either:
  • Is entitled to benefits based on blindness or disability under the Social Security Act, and that blindness or disability occurred before the individual reached age 26.
  • Has filed a disability certification, as defined in the federal ABLE Act, pursuant to the requirements set forth in the federal ABLE Act.
• Allows the ABLE Act Board to enter into a multistate contract with an account servicer to implement the program,
• Allows the ABLE Act Board to enter into a long-term contract with an account servicer to recoup costs from administering ABLE accounts in the first years of administration, and
• Exempts contracts listed above from provisions of the Public Contract Code that precludes contractors who have been awarded consulting services contracts from submitting bids and being awarded contracts for providing services, procuring goods or supplies, or any other related action which is required, suggested, or otherwise deemed appropriate in the end product of the consulting services contract.

The measure also makes technical and grammatical changes.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. According to the author, “The California ABLE Act as signed into law by Governor Brown in late 2015 will provide people with disabilities a critical service by allowing them to save money for the future without jeopardizing their disability benefits. The State Treasurer and ABLE Act Board have requested the authority to enter into a multistate, long-term contract with an account service provider in order to successfully implement the ABLE Act in a cost-effective manner. Current statute does not give them this authority. AB 1553 is cleanup language that will allow the successful and effective implementation of AB 449 (Irwin 2015) and SB 324 (Pavley 2015).”

2. Account servicing. TIAA-CREF Tuition Financing, Inc. currently manages the state’s Scholarshare program, along with ten other distinct state-sponsored 529 college savings plans. ABLE accounts provide similar preferential tax treatment as Scholarshare accounts; however, investments may not grow as much as under Scholarshare because distributions support immediate and ongoing expenses for an individual with disabilities. Scholarshare will also likely have more enrollees than ABLE accounts. Accordingly, the State Treasurer believes that entering into a multistate consortium for administration of ABLE accounts may help minimize implementation costs. Other states’ implementation strategies vary: Nebraska and Iowa will likely manage accounts for beneficiaries who aren’t located in their states, but Florida’s program only applies to its residents. Ohio manages accounts for both residents and nonresidents, but charges non-Ohioans higher fees.

3. Necessary? AB 449 authorized the ABLE Act trust to 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. As such, it’s unclear whether AB 1553 contract authorizations are necessary beyond the bill’s disconnection of Public Contract Code provisions that generally prohibits a consultant from bidding on or being awarded a follow-on contract based on the product of a previous contract by that consultant. The Committee may wish to consider whether AB 1553’s contract authorizations are needed.

4. Technical. As currently drafted, AB 449 may allow an individual whose blindness or disability had onset after age 26 to qualify as an ABLE Act beneficiary. If this is the case, then Committee staff recommends a technical amendment ensuring that this requirement applies.

Assembly Actions

Assembly Revenue and Taxation 9-0

Assembly Appropriations 19-0

Assembly Floor 79-0

Support and Opposition

(6/9/16)

Support: State Treasurer John Chiang, The Arc and United Cerebral Palsy, Financial Services Institute, State Council on Developmental Disabilities.

Opposition: None received.

-- END --

Date of Hearing: April 27, 2016

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 1553

Author:(Irwin) – As Amended Ver:February 29, 2016

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill authorizes the California Achieving a Better Life Experience (ABLE) Act Board (Board) to enter into a multistate contract with an account servicer to implement the ABLE program trust. Specifically, this bill:

1. Authorizes the ABLE Board to enter into a long-term multistate contract with an account servicer.
2. Allows the account servicer to recoup costs from administering ABLE accounts in the first years of administration.
3. Specifies that the provision of the Public Contract Code (PCC) that prohibits the recipient of a consulting services contract from bidding on a subsequent contract the recipient requires or suggests does not apply.

FISCAL EFFECT:

Potential administrative savings to the ABLE Act Board.

COMMENTS:

1. Background. Upon full implementation, the California ABLE Act will allow Californians with disabilities to access federally recognized ABLE tax-free savings accounts to save for future disability-related expenses. These accounts will generally follow the same rules as 529 Qualified Tuition Programs, administered in California as the Golden State Scholarshare College Savings Trust (Scholarshare): individuals can make nondeductible cash contributions to an ABLE account in the name of a beneficiary, and earnings can grow tax-free. ABLE account distributions are not included in the beneficiary’s income so long as they are used for qualified services for the beneficiary and distributions do not exceed the cost of those services.

The Board has not yet met in a formal capacity and has no dedicated staff. As a result, the Board has not entered into any contracts for administration of the program or beneficiary accounts. California and other states are in the process of developing their ABLE programs, with most states aiming to offer ABLE Accounts by 2017.

1. Potential for higher administrative costs. The ABLE Act is different from the Scholarshare in some key ways. First, unlike college savings accounts, the distributions from ABLE accounts are meant to support immediate and ongoing expenses for an individual with disabilities. As a result, ABLE accounts may not see the same investment growth over time as a Scholarshare account. Second, there is likely to be a much smaller beneficiary pool for ABLE accounts than for Scholarshare accounts, so relative administrative costs are likely to be higher for this program than for Scholarshare.
2. Purpose. According to the sponsor, AB 1553 makes technical improvements to California’s ABLE Act statue by allowing the state to enter into a multi-state consortium and a long-term contract with a service provider in order to minimize administrative costs. A multi-state consortium would mean a larger pool of beneficiaries for ABLE accounts.
3. Is legislation necessary? The Assembly Revenue and Taxation Committee analysis of AB 1553 suggests that legislation may not be necessary to allow the State Controller’s Office to enter into a multistate agreement, as there is no general prohibition on multistate contracts.

Analysis Prepared by: Luke Reidenbach / APPR. / (916) 319-2081

Date of Hearing: April 18, 2016

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Sebastian Ridley-Thomas, Chair

ABPCA Bill Id:AB 1553 (

Author:Irwin) – As Amended Ver:February 29, 2016

Majority vote. Fiscal committee.

SUBJECT: Savings plans: qualified ABLE program

SUMMARY: Authorizes the California ABLE Act Board (ABLE Board) to enter into a multistate contract with an account servicer to implement the ABLE program trust. Specifically, this bill:

1. Authorizes the ABLE Board to enter into a long-term multistate contract with an account servicer.
2. Allows the account servicer to recoup costs from administering ABLE accounts in the first years of administration.
3. Specifies that a provision of the Public Contract Code (PCC), prohibiting the recipient of a consulting services contract from bidding on a subsequent contract the recipient requires or suggests, does not apply.

EXISTING FEDERAL LAW:

1. Enacts the Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014 (ABLE Act), that 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.
2. Provides that contributions to an ABLE account are not deductible for federal income tax purposes, and aggregate contributions during a taxable year may not exceed the annual gift tax exclusion amount. For 2016, the annual gift tax exclusion amount is $14,000.
3. Provides that distributions from an ABLE account are excludable from income to the extent the total distribution does not exceed the qualified disability expenses of the beneficiary during the taxable year.
4. Defines "qualified disability expenses" as any expenses related to an individual's blindness or disability, including 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 approved expenses.
5. Specifies that the qualified ABLE program must limit a designated beneficiary to one ABLE account.
6. Defines an "eligible individual" as an individual who meets the requirements relating to blindness or disability under the Supplemental Security Income (SSI) program. Generally, an individual must be blind or disabled prior to age 26.

EXISTING STATE LAW

1. Conforms to federal income tax law provisions relating to the ABLE Act under the Personal Income Tax (PIT) Law and the Corporation Tax (CT) Law, allowing the creation of ABLE accounts for beneficiaries in California and ensuring that ABLE account earnings and distributions for qualified disability expenses are not included in the eligible individual's income for state tax purposes.
2. Establishes the California ABLE Program Trust (Trust) to implement the federal ABLE Act.
3. Establishes the ABLE Board, chaired by the Treasurer and consisting of 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 Chair of the State Independent Living Council.
4. Authorizes the ABLE Board, in exercising the purposes, powers, and duties of the Trust, amongst other duties, to do the following:
   1. Make and enter into contracts necessary for the administration of the Trust;
   2. Enter into agreements with designated beneficiaries or eligible individuals to establish and maintain an ABLE account;
   3. Set minimum and maximum investment levels; and,
   4. Administer the funds of the Trust.
5. Requires the Treasurer to appoint an executive director who may be authorized by the ABLE Board to enter into contracts on behalf of the ABLE Board or conduct any business necessary for the efficient operation of the ABLE Board.
6. Requires the ABLE Board to segregate moneys received by the Trust into two funds, a program fund and an administrative fund.
7. Authorizes moneys in the program fund to be invested or reinvested by the Treasurer or under contract with an investment manager determined by the ABLE Board.
8. Requires the ABLE Board annually to prepare and adopt a written statement of investment policy in a public hearing, and the investment manager to report publicly detailed investment performance information no later than 30 days after the close of each month.
9. Specifies that administrative costs will be available to the ABLE Board upon appropriation and are capped at 3% of incoming funds each fiscal year for the first five fiscal years, and at 1% of incoming funds each fiscal year thereafter.
10. Specifies that funding for startup and administrative costs for the ABLE Board will be loaned from the General Fund for the first two years, and will be repaid when revenues from the program are sufficient to cover the ABLE Board's ongoing costs.

FISCAL EFFECT: Unknown

COMMENTS:

1. Author's Statement: The Author has provided the following statement in support of this bill:

The California ABLE Act as signed into law by Governor Brown in late 2015 will provide people with disabilities a critical service by allowing them to save money for the future without jeopardizing their disability benefits. The State Treasurer and ABLE Act Board have requested the authority to enter into a multistate, long-term contract with an account service provider in order to successfully implement the ABLE Act in a cost-effective manner. Current statute does not give them this authority. AB 1553 is cleanup language that will allow the successful and effective implementation of AB 449 (Irwin 2015) and SB 324 (Pavley 2015).

1. Arguments in Support: The sponsor of this bill, State Treasurer John Chiang, states:

AB 1553 makes technical improvements upon existing law and standardizes California's ABLE Act statute to regulations issued by the federal government in November 2015. To minimize administrative costs during program implementation, AB 1553 also allows the California ABLE Board the option of entering into a multi-state consortium and a long-term contract with a service provider.

1. ABLE Accounts Model Scholarshare Accounts: The California ABLE Act allows Californians with disabilities to access federally recognized ABLE tax-free savings accounts to save for future disability-related expenses. ABLE accounts generally follow the same rules as 529 Qualified Tuition Programs, administered in California as the Golden State Scholarshare College Savings Trust (Scholarshare) – 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 are used for qualified services for the beneficiary and distributions do not exceed the cost of those services.

Both programs are also administered by boards chaired by the State Treasurer with similar authorizing powers. The ABLE Board and Scholarshare Investment Board (SIB) have authority to enter into contracts necessary for administration of their respective trusts. Any investment manager contracted with the ABLE Board or SIB must follow investment level guidelines set by the boards and publicly report detailed investment performance information each month.

1. Implementation of the ABLE Act: The ABLE Board has not yet met in a formal capacity and has no dedicated staff. As such, the ABLE Board has not entered into any contracts for administration of the program or beneficiary accounts.

Aside from California, 41 other states have successfully passed ABLE Act legislation, and 6 states have ABLE Act legislation currently pending. The U.S. Department of Treasury issued proposed regulations for the federal ABLE Act in June 2015, with states awaiting final guidance for program implementation. As a result, all states are still in the process of developing their ABLE programs, with most states aiming to offer ABLE accounts by 2017.

1. Role of the Multistate Account Servicer: Scholarshare is currently managed by TIAA-CREF Tuition Financing, Inc., which operates 10 other distinct state-sponsored 529 college savings plans in addition to California's. Although ABLE accounts provide similar preferential tax treatment as Scholarshare accounts, they may not realize the same level of investment growth because distributions are intended to support immediate and ongoing expenses for an individual with disabilities, such as housing, health, transportation, and personal support services, compared to Scholarshare accounts intended to remain untapped until the beneficiary is ready to enter college. It is also likely that there is a larger beneficiary pool for Scholarshare accounts than for ABLE accounts, allowing better estimation of demand for Scholarshare accounts than ABLE accounts. Accordingly, the State Treasurer believes that entering into a multistate consortium for administration of ABLE accounts may help minimize implementation costs. Other states that have passed ABLE Act legislation are also considering multistate consortiums to administer their trusts.

This bill authorizes the ABLE Board to enter into a long-term, multistate contract with an account servicer that would manage a collective pool of accounts across different states. However, since existing law already authorizes the ABLE Board to enter into contracts necessary for efficient operation of the Trust, it is unclear why the express authorization provided in this bill is needed. There is no general prohibition on multistate contracts and this bill would not exempt the ABLE Board from existing competitive bid requirements, except that this bill would exempt any multistate contract entered into by the ABLE Board from a provision of the PCC prohibiting "follow-on" contracts in which a recipient of a consulting services contract bids on a subsequent contract it requires or suggests. The intent of this exemption language is to avoid discouraging potential vendors from bidding on a potential contract to design Trust regulations, as they would then otherwise be prohibited from subsequently bidding to administer the Trust. Since the market for account servicers is still undetermined, the Committee may wish to consider whether this exemption is premature.

1. Related Legislation: AB 449 (Irwin), Chapter 774, Statutes of 2015, and SB 324 (Pavley), Chapter 796, Statutes of 2015, enacted the California ABLE Act.

REGISTERED SUPPORT / OPPOSITION:

Support

California State Treasurer John Chiang (Sponsor)

State Council on Developmental Disabilities

The Arc and United Cerebral Palsy California Collaboration

Opposition

None on file

Analysis Prepared by: Irene Ho / REV. & TAX. / (916) 319-2098