SB 324: Income taxation: savings plans: Qualified ABLE Program.
- Session Year: 2015-2016
- House: Senate
- Latest Version Date: 2015-10-11
The Personal Income Tax Law and the Corporation Tax Law, in specified conformity with federal income tax laws regarding qualified tuition programs, provide that distributions from a qualified tuition program are generally not included in the income of the donor or the beneficiary, as specified.
Existing federal law, the Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014 (ABLE Act), for taxable years beginning on or after January 1, 2014, 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.
This bill, for taxable years beginning on or after January 1, 2016, would conform to these federal income tax law provisions relating to the ABLE Act under the Personal Income Tax Law, as provided. The bill would create the ABLE Act Board and would require the board provide an annual listing of distributions to individuals that have an interest in an ABLE account to the Franchise Tax Board, as provided.
This bill would provide that it will only become effective if AB 449 is enacted and becomes effective.
The Personal Income Tax Law and the Corporation Tax Law, in specified conformity with federal income tax laws regarding qualified tuition programs, provide that distributions from a qualified tuition program are generally not included in the income of the donor or the beneficiary, as specified.
Existing federal law, the Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014 (ABLE Act), for taxable years beginning on or after January 1, 2014, 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.
This bill, for taxable years beginning on or after January 1, 2016, would conform to these federal income tax law provisions relating to the ABLE Act under the Personal Income Tax Law, as provided. The bill would create the ABLE Act Board and would require the board provide an annual listing of distributions to individuals that have an interest in an ABLE account to the Franchise Tax Board, as provided.
This bill would provide that it will only become effective if AB 449 is enacted and becomes effective.
The Personal Income Tax Law and the Corporation Tax Law, in specified conformity with federal income tax laws regarding qualified tuition programs, provide that distributions from a qualified tuition program are generally not included in the income of the donor or the beneficiary, as specified.
Existing federal law, the Stephen Beck Beck, Jr., Achieving a Better Life Experience Act of 2014 (ABLE Act), for taxable years beginning on or after January 1, 2015, 2014, 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.
This bill, for taxable years beginning on or after January 1, 2016, would conform 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. The bill would also establish in state government the ABLE program trust for purposes of implementing the federal ABLE Act. The bill would create the ABLE Act Board and would authorize the board to adopt regulations to implement the program. The bill would create the program fund and the administrative fund, both continuously appropriated funds, thereby making an appropriation. The bill would require the Treasurer to administer the program in compliance with the requirements of the federal ABLE Act. require the board provide an annual listing of distributions to individuals that have an interest in an ABLE account to the Franchise Tax Board, as provided.
This bill would provide that it will only become effective if AB 449 is enacted and becomes effective.
The Personal Income Tax Law and the Corporation Tax Law, in specified conformity with federal income tax laws regarding qualified tuition programs, provide that distributions from a qualified tuition program are generally not included in the income of the donor or the beneficiary, as specified.
Existing federal law, the Stephen Beck Jr., Achieving a Better Life Experience Act of 2014 (ABLE Act), for taxable years beginning on or after January 1, 2015, 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.
This bill would conform 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. The bill would also establish in state government a Qualified ABLE Program and the ABLE Fund for purposes of implementing the federal ABLE Act. the ABLE program trust for purposes of implementing the federal ABLE Act. The bill would create the ABLE Act Board. The bill would authorize the Able Fund to accept moneys from ABLE accounts, to be segregated into the program account and the administrative account. The bill would continuously appropriate funds in the accounts to the board for specified purposes, thereby making an appropriation. Board and would authorize the board to adopt regulations to implement the program. The bill would create the program fund and the administrative fund, both continuously appropriated funds, thereby making an appropriation. The bill would require the Treasurer to administer the program in compliance with the requirements of the federal ABLE Act.
The Personal Income Tax Law and the Corporation Tax Law, in specified conformity with federal income tax laws regarding qualified tuition programs, provide that distributions from a qualified tuition program are generally not included in the income of the donor or the beneficiary, as specified.
Existing federal law, the Stephen Beck Jr., Achieving a Better Life Experience Act of 2014 (ABLE Act), for taxable years beginning on or after January 1, 2015, 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.
This bill would conform 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. The bill would also establish in state government a Qualified ABLE Program and the Qualified ABLE Fund for purposes of implementing the federal ABLE act. Act. The bill would create the ABLE Act Board. The bill would authorize the Able Fund to accept moneys from ABLE accounts, to be segregated into the program account and the administrative account. The bill would continuously appropriate funds in the accounts to the board for specified purposes, thereby making an appropriation. The bill would require the Treasurer to administer the program in compliance with the requirements of the federal ABLE Act.
The Personal Income Tax Law and the Corporation Income Tax Law, in specified conformity with federal income tax laws regarding qualified tuition programs, provide that distributions from a qualified tuition program are generally not included in the income of the donor or the beneficiary, as specified.
Existing federal law, the Stephen Beck Jr., Achieving a Better Life Experience Act of 2014 (ABLE act Act), for taxable years beginning on or after January 1, 2015, 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 Qualified ABLE Program established and maintained by a state, as specified.
This bill would conform to these federal income tax law provisions relating to the ABLE Act under the Personal Income Tax Law and the Corporation Income Tax Law, as provided. The bill would also establish in state government a qualified ABLE program Qualified ABLE Program and the Qualified ABLE Fund for purposes of implementing the federal ABLE act. The bill would require the Treasurer to administer the program in compliance with the requirements of the federal ABLE act Act.
The Personal Income Tax Law and the Corporation Income Tax Law, in specified conformity with federal income tax laws regarding qualified tuition programs, provide that distributions from a qualified tuition program are generally not included in the income of the donor or the beneficiary, as specified.
Existing federal law, the Stephen Beck Jr., Achieving a Better Life Experience Act of 2014 (ABLE act), for taxable years beginning on or after January 1, 2015, 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.
This bill would conform to these federal income tax law provisions relating to the ABLE Act under the Personal Income Tax Law and the Corporation Income Tax Law, as provided. The bill would also establish in state government a qualified ABLE program and the Qualified ABLE Fund for purposes of implementing the federal ABLE act. The bill would require the Treasurer to administer the program in compliance with the requirements of the federal ABLE act.
For taxable years beginning on or after January 1, 2016, Section 529A of the Internal Revenue Code, relating to qualified ABLE programs, added by Section 102 of Division B of Public Law 113-295, shall apply, except as otherwise provided.
(a)Section 529A(a) of the Internal Revenue Code is modified as follows:
(1)By substituting the phrase under this part and Part 11 (commencing with Section 23001) in lieu of the phrase under this subtitle.
(2)By substituting Article 2 (commencing with Section 23731) in lieu of Section 511.
(b)Section 529A(c)(3)(A) of the Internal Revenue Code is modified by substituting 2.5 percent in lieu of 10 percent.
(c)A copy of the report required to be filed with the Secretary of the Treasury under Section 529A(d) of the Internal Revenue Code, relating to reports, shall be filed with the Franchise Tax Board at the same time and in the same manner as specified in that section.
SEC. 2.Chapter 15 (commencing with Section 4875) is added to Division 4.5 of the Welfare and Institutions Code, to read:15.Qualified ABLE Program4875.For purposes of this chapter:
(a)ABLE account or account means the account established and owned by a designated beneficiary pursuant to this chapter for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account.
(b)Administrative fund means the fund used to administer this chapter.
(c)Board means the California ABLE Act Board established under this chapter.
(d)California ABLE Program Trust or ABLE program trust means the trust created pursuant to this chapter.
(e)Designated beneficiary means the eligible individual who established an ABLE account and is the owner of the account.
(f)Eligible individual means an individual who is eligible under the program for a taxable year if during that taxable year both of the following criteria are met:
(1)The individual is entitled to benefits based on blindness or disability under Title II or XVI of the federal Social Security Act, and that blindness or disability occurred before the date on which the individual attained 26 years of age.
(2)A disability certification, as defined in the federal ABLE Act, with respect to the individual is filed pursuant to the requirements set forth in the federal ABLE Act.
(g)Federal ABLE Act means the federal Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014.
(h)Investment management means the functions performed by a manager contracted to perform functions delegated by the board.
(i)Investment manager means a manager contracted to perform functions delegated by the board.
(j)Program fund means the program fund established by this chapter, which shall be held as a separate fund within the California ABLE Program Trust.
(k)Qualified ABLE Program or program means the program established by this chapter to implement the federal ABLE Act pursuant to Section 529A of the Internal Revenue Code.
(l)Qualified disability expenses means any expenses related to the eligible individuals blindness or disability that are made for the benefit of an eligible individual who is the designated beneficiary, including expenses related to 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 expenses, which are approved by the Secretary of the Treasury under regulations and consistent with the purposes of the federal ABLE Act.
4876.There is hereby created the California ABLE Act Board that consists of the Treasurer, 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, or their designees. The Treasurer shall serve as chair of the board.
4879.(a)Under the program, a person may make contributions for a taxable year, for the benefit of an individual who is an eligible individual for that taxable year, to an ABLE account that is established for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account if both of the following criteria are met:
(1)The designated beneficiary is limited to one ABLE account for purposes of this chapter.
(2)The ABLE account is established only for a designated beneficiary who is a resident of this state.
(b)A contribution shall not be accepted if either of the following occurs:
(1)The contribution is not in cash.
(2)Except in the case of contributions under Section 529A(c)(1)(C) of the Internal Revenue Code, relating to change in designated beneficiaries or programs, the contribution to an ABLE account would result in aggregate contributions from all contributors to the ABLE account for the taxable year exceeding the amount in effect under Section 2503(b) of the Internal Revenue Code, relating to exclusion from gifts, for the calendar year in which the taxable year begins.
(c)The designated beneficiary shall retain ownership of all contributions made to the designated beneficiarys ABLE account to the date of utilization for qualified disability expenses, and all interest derived from the investment of the contributions to the designated beneficiarys ABLE account shall be deemed to be held in the ABLE program trust for the benefit of the designated beneficiary. Neither the contributions, nor any interest derived therefrom, may be pledged as collateral for any loan.
(d)The board shall develop adequate safeguards to prevent aggregate contributions on behalf of a designated beneficiary in excess of the maximum contribution limits necessary to provide for the qualified disability expenses of the designated beneficiary. For purposes of this subdivision, aggregate contributions include contributions under any prior qualified ABLE program of any state or agency or instrumentality thereof.
4881.(a)The board shall provide an annual listing of distributions to individuals with respect to an interest in an ABLE account to the Franchise Tax Board at a time and in a manner and form as specified by the Franchise Tax Board. The taxpayers identification numbers obtained in connection with an ABLE account shall be used exclusively for state and federal tax administration purposes.
(b)The board shall make a report to the appropriate individual of any distribution to any individual with respect to an interest in an ABLE account, at a time and in a form and manner as required by the Franchise Tax Board.
(c)The board shall report annually to each designated beneficiary all of the following:
(1)The value of the designated beneficiarys account.
(2)The interest earned thereon.
(3)The rate of return of the investments in the designated beneficiarys account for that reporting period.
(4)Information on investments and qualified disability expenses that designated beneficiaries can use to set savings goals and contribution amounts.
(d)The board shall provide a means for designated beneficiaries to express concerns or comments regarding the ABLE program trust and any information required to be reported by this section.
4883.This act shall be construed liberally in order to effectuate its legislative intent. The purposes of this act and all of its provisions with respect to powers granted shall be broadly interpreted to effectuate the intent and purposes of the federal ABLE Act and not as a limitation of those powers.
SEC. 3.This act shall only become effective if Assembly Bill 449 of the 201516 Regular Session is enacted and becomes effective.
For taxable years beginning on or after January 1, 2016, Section 529A of the Internal Revenue Code, relating to qualified ABLE programs, added by Section 102 of Division B of Public Law 113-295, shall apply, except as otherwise provided.
(a)Section 529A(a) of the Internal Revenue Code is modified as follows:
(1)By substituting the phrase under this part and Part 11 (commencing with Section 23001) in lieu of the phrase under this subtitle.
(2)By substituting Article 2 (commencing with Section 23731) in lieu of Section 511.
(b)Section 529A(c)(3)(A) of the Internal Revenue Code is modified by substituting 2.5 percent in lieu of 10 percent.
(c)A copy of the report required to be filed with the Secretary of the Treasury under Section 529A(d) of the Internal Revenue Code, relating to reports, shall be filed with the Franchise Tax Board at the same time and in the same manner as specified in that section.
SEC. 2.Chapter 15 (commencing with Section 4875) is added to Division 4.5 of the Welfare and Institutions Code, to read:15.Qualified ABLE Program4875.For purposes of this chapter:
(a)ABLE account or account means the account established and owned by a designated beneficiary pursuant to this chapter for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account.
(b)Administrative fund means the fund used to administer this chapter.
(c)Board means the California ABLE Act Board established under this chapter.
(d)California ABLE Program Trust or ABLE program trust means the trust created pursuant to this chapter.
(e)Designated beneficiary means the eligible individual who established an ABLE account and is the owner of the account.
(f)Eligible individual means an individual who is eligible under the program for a taxable year if during that taxable year both of the following criteria are met:
(1)The individual is entitled to benefits based on blindness or disability under Title II or XVI of the federal Social Security Act, and that blindness or disability occurred before the date on which the individual attained 26 years of age.
(2)A disability certification, as defined in the federal ABLE Act, with respect to the individual is filed pursuant to the requirements set forth in the federal ABLE Act.
(g)Federal ABLE Act means the federal Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014.
(h)Investment management means the functions performed by a manager contracted to perform functions delegated by the board.
(i)Investment manager means a manager contracted to perform functions delegated by the board.
(j)Program fund means the program fund established by this chapter, which shall be held as a separate fund within the California ABLE Program Trust.
(k)Qualified ABLE Program or program means the program established by this chapter to implement the federal ABLE Act pursuant to Section 529A of the Internal Revenue Code.
(l)Qualified disability expenses means any expenses related to the eligible individuals blindness or disability that are made for the benefit of an eligible individual who is the designated beneficiary, including expenses related to 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 expenses, which are approved by the Secretary of the Treasury under regulations and consistent with the purposes of the federal ABLE Act.
4876.There is hereby created the California ABLE Act Board that consists of the Treasurer, 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, or their designees. The Treasurer shall serve as chair of the board.
4879.(a)Under the program, a person may make contributions for a taxable year, for the benefit of an individual who is an eligible individual for that taxable year, to an ABLE account that is established for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account if both of the following criteria are met:
(1)The designated beneficiary is limited to one ABLE account for purposes of this chapter.
(2)The ABLE account is established only for a designated beneficiary who is a resident of this state.
(b)A contribution shall not be accepted if either of the following occurs:
(1)The contribution is not in cash.
(2)Except in the case of contributions under Section 529A(c)(1)(C) of the Internal Revenue Code, relating to change in designated beneficiaries or programs, the contribution to an ABLE account would result in aggregate contributions from all contributors to the ABLE account for the taxable year exceeding the amount in effect under Section 2503(b) of the Internal Revenue Code, relating to exclusion from gifts, for the calendar year in which the taxable year begins.
(c)The designated beneficiary shall retain ownership of all contributions made to the designated beneficiarys ABLE account to the date of utilization for qualified disability expenses, and all interest derived from the investment of the contributions to the designated beneficiarys ABLE account shall be deemed to be held in the ABLE program trust for the benefit of the designated beneficiary. Neither the contributions, nor any interest derived therefrom, may be pledged as collateral for any loan.
(d)The board shall develop adequate safeguards to prevent aggregate contributions on behalf of a designated beneficiary in excess of the maximum contribution limits necessary to provide for the qualified disability expenses of the designated beneficiary. For purposes of this subdivision, aggregate contributions include contributions under any prior qualified ABLE program of any state or agency or instrumentality thereof.
4881.(a)The board shall provide an annual listing of distributions to individuals with respect to an interest in an ABLE account to the Franchise Tax Board at a time and in a manner and form as specified by the Franchise Tax Board. The taxpayers identification numbers obtained in connection with an ABLE account shall be used exclusively for state and federal tax administration purposes.
(b)The board shall make a report to the appropriate individual of any distribution to any individual with respect to an interest in an ABLE account, at a time and in a form and manner as required by the Franchise Tax Board.
(c)The board shall report annually to each designated beneficiary all of the following:
(1)The value of the designated beneficiarys account.
(2)The interest earned thereon.
(3)The rate of return of the investments in the designated beneficiarys account for that reporting period.
(4)Information on investments and qualified disability expenses that designated beneficiaries can use to set savings goals and contribution amounts.
(d)The board shall provide a means for designated beneficiaries to express concerns or comments regarding the ABLE program trust and any information required to be reported by this section.
4883.This act shall be construed liberally in order to effectuate its legislative intent. The purposes of this act and all of its provisions with respect to powers granted shall be broadly interpreted to effectuate the intent and purposes of the federal ABLE Act and not as a limitation of those powers.
SEC. 3.This act shall only become effective if Assembly Bill 449 of the 201516 Regular Session is enacted and becomes effective.
For taxable years beginning on or after January 1, 2016, Section 529A of the Internal Revenue Code, relating to qualified ABLE programs, added by Section 102 of Division B of Public Law 113-295, shall apply, except as otherwise provided.
(a)Section 529A 529A(a) of the Internal Revenue Code is modified as follows:
(1)By substituting the phrase under this part and Part 11 (commencing with Section 23001) in lieu of the phrase under this subtitle.
(2)By substituting Article 2 (commencing with Section 23731) in lieu of Section 511.
(b)Section 529A(c)(3)(A) of the Internal Revenue Code is modified by substituting 2.5 percent in lieu of 10 percent.
(b)
(c)A copy of the report required to be filed with the Secretary of the Treasury under Section 529A(d) of the Internal Revenue Code, relating to reports, shall be filed with the Franchise Tax Board at the same time and in the same manner as specified in that section.
SEC. 2.Section 23711.4 is added to the Revenue and Taxation Code, to read:23711.4.Section 529A of the Internal Revenue Code, relating to qualified ABLE programs, added by Section 102 of Division B of Public Law 113-295, shall apply, except as otherwise provided.
(a)Section 529A of the Internal Revenue Code is modified as follows:
(1)By substituting the phrase under Part 10 (commencing with Section 17001) and this part in lieu of the phrase under this subtitle.
(2)By substituting Article 2 (commencing with Section 23731) in lieu of Section 511.
(b)A copy of the report required to be filed with the Secretary of the Treasury under Section 529A(d) of the Internal Revenue Code, relating to reports, shall be filed with the Franchise Tax Board at the same time and in the same manner as specified in that section.
SEC. 3.SEC. 2.Chapter 15 (commencing with Section 4875) is added to Division 4.5 of the Welfare and Institutions Code, to read:15.Qualified ABLE Program4875.For purposes of this chapter:
(a)ABLE account or account means the account established and owned by a designated beneficiary pursuant to this chapter for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account.
(b)Administrative fund means the fund used to administer this chapter.
(c)Board means the California ABLE Act Board established under this chapter.
(d)California ABLE Program Trust or ABLE program trust means the trust created pursuant to this chapter.
(e)Designated beneficiary means the eligible individual who established an ABLE account and is the owner of the account.
(f)Eligible individual means an individual who is eligible under the program for a taxable year if during that taxable year both of the following criteria are met:
(1)The individual is entitled to benefits based on blindness or disability under Title II or XVI of the federal Social Security Act, and that blindness or disability occurred before the date on which the individual attained 26 years of age.
(2)A disability certification, as defined in the federal ABLE Act, with respect to the individual is filed pursuant to the requirements set forth in the federal ABLE Act.
(g)Federal ABLE Act means the federal Stephen Beck Beck, Jr., Achieving a Better Life Experience Act of 2014.
(h)Investment management means the functions performed by a manager contracted to perform functions delegated by the board.
(i)Investment manager means a manager contracted to perform functions delegated by the board.
(j)Program fund means the program fund established by this chapter, which shall be held as a separate fund within the California ABLE Program Trust.
(k)Qualified ABLE Program or program means the program established by this chapter to implement the federal ABLE Act pursuant to Section 529A of the Internal Revenue Code.
(l)Qualified disability expenses means any expenses related to the eligible individuals blindness or disability that are made for the benefit of an eligible individual who is the designated beneficiary, including expenses related to 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 expenses, which are approved by the Secretary of the Treasury under regulations and consistent with the purposes of the federal ABLE Act.
4876.There is hereby created the California ABLE Act Board that consists of the Treasurer, 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, or their designees. The Treasurer shall serve as chair of the board.
4877.(a)There is hereby created an instrumentality of the State of California to be known as the California ABLE Program Trust.
(b)The purposes, powers, and duties of the California ABLE Program Trust are vested in, and shall be exercised by, the board.
(c)The board, in the capacity of trustee, shall have the power and authority to do all of the following:
(1)Sue and be sued.
(2)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.
(3)Adopt a corporate seal and change and amend it from time to time.
(4)Cause moneys in the program fund to be held and invested and reinvested.
(5)Accept any grants, gifts, appropriations, and other moneys from any unit of federal, state, or local government or any other person, firm, partnership, or corporation for deposit to the administrative fund or the program fund. The board may not accept any contribution by any nonpublic entity, person, firm, partnership, or corporation that is not designated for a specified designated beneficiary.
(6)Enter into agreements with designated beneficiaries or eligible individuals to establish and maintain an ABLE account.
(7)Make provisions for the payment of costs of administration and operation of the ABLE program trust.
(8)Carry out the duties and obligations of the ABLE program trust pursuant to this chapter and the federal ABLE Act pursuant to Section 529A of the Internal Revenue Code and federal regulations issued pursuant to that code, and have any other powers as may be reasonably necessary for the effectuation of the purposes, objectives, and provisions of this chapter.
(9)Carry out studies and projections in order to advise designated beneficiaries or eligible individuals regarding present and estimated future qualified disability expenses and the levels of financial participation in the ABLE program trust required in order to assist designated beneficiaries or eligible individuals.
(10)Participate in any other way in any federal, state, or local governmental program for the benefit of the ABLE program trust.
(11)Promulgate, impose, and collect administrative fees and charges in connection with transactions of the ABLE program trust, and provide for reasonable service charges, including penalties for cancellations.
(12)Set minimum and maximum investment levels.
(13)Administer the funds of the ABLE program trust.
(14)Procure insurance against any loss in connection with the property, assets, or activities of the ABLE program trust.
(15)Procure insurance indemnifying any member of the board from personal loss or liability resulting from a members action or inaction as a member of the board.
(d)The Treasurer shall, on behalf of the board, appoint an executive director, who shall not be a member of the board and who shall serve at the pleasure of the board. The Treasurer shall determine the duties of the executive director and other staff as necessary and set his or her compensation. The board may authorize the executive director to enter into contracts on behalf of the board or conduct any business necessary for the efficient operation of the board.
4878.(a)The board shall segregate moneys received by the ABLE program trust into two funds, which shall be identified as the program fund and the administrative fund.
(1)Notwithstanding Section 13340 of the Government Code, the program fund is hereby continuously appropriated, without regard to fiscal years, to the ABLE Act Board for the purposes specified in this act.
(2)Notwithstanding Section 13340 of the Government Code, the administrative fund is hereby continuously appropriated, without regard to fiscal years, to the ABLE Act Board for administration of the act. Administrative costs shall not exceed 3 percent of the incoming funds for each fiscal year for the first five fiscal years following the opening of the first ABLE Act account. After the five-year period, administrative costs shall not exceed 1 percent of the incoming funds for each fiscal year.
(3)Funding for startup and administrative costs for the board shall be provided in the form of a loan from the General Fund sufficient to cover the boards projected administrative costs for its first two years of implementing the program. Once the loan has been expended and revenues from the program are sufficient to cover the boards ongoing costs, the board shall repay, within five years, the amount loaned, plus interest calculated at the rate earned by the Pooled Money Investment Account.
(b)Not later than 30 days after the close of each month, the investment manager shall place on file for public inspection during business hours a report with respect to investment performance. The investment manager shall report the following information, to the extent applicable, to the board within 30 days following the end of each month:
(1)The type of investment, name of the issuer, date of maturity, and the par and dollar amount invested in each security, investment, and money within the program fund.
(2)The weighted average maturity of the investments within the program fund.
(3)Any amounts in the program fund that are under the management of an investment manager.
(4)The market value as of the date of the report and the source of this valuation for any security within the program fund.
(5)A description of the compliance with the statement of investment policy.
(c)Moneys in the program fund may be invested or reinvested by the Treasurer or may be invested in whole or in part under contract with an investment manager, as determined by the board.
(d)The board shall annually prepare and adopt a written statement of investment policy. The board shall consider the statement of investment policy and any changes in the investment policy at a public hearing. The board shall approve the investment management entity or entities consistent with subdivision (c).
(e)Transfers may be made from the program fund to the administrative fund for the purpose of paying operating costs associated with administering the ABLE program trust and as required by this chapter. All costs of administration of the ABLE program trust shall be paid out of the administrative fund.
(f)All moneys paid by designated beneficiaries or eligible individuals in connection with ABLE accounts shall be deposited as received into the program fund, and shall be promptly invested and accounted for separately. Deposits and interest thereon accumulated on behalf of designated beneficiaries in the program fund of the ABLE program trust may be used for qualified disability expenses.
(g)The board shall maintain separate accounting for each designated beneficiary.
(h)Any designated beneficiary may, directly or indirectly, direct the investment of any contributions to his or her ABLE account, or any earnings thereon, no more than two times in any calendar year.
(i)The assets of the trust, including the program fund, shall at all times be preserved, invested, and expended solely and only for the purposes of the trust and shall be held in trust for the designated beneficiaries and no property rights therein shall exist in favor of the state. The assets shall not be transferred or used by the state for any purposes other than the purposes of the trust and consistent with the provisions of the federal ABLE Act.
4879.(a)Under the program, a person may make contributions for a taxable year, for the benefit of an individual who is an eligible individual for that taxable year, to an ABLE account that is established for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account if both of the following criteria are met:
(1)The designated beneficiary is limited to one ABLE account for purposes of this chapter.
(2)The ABLE account is established only for a designated beneficiary who is a resident of this state.
(b)A contribution to any ABLE account shall not be accepted unless one of the following conditions is satisfied:
(1)The contribution is in cash.
(2)Except in the case of contributions under Section 529A(c)(1)(C) of the Internal Revenue Code, if the contribution to an ABLE account would result in aggregate contributions from all contributors to the ABLE account for the taxable year exceeding the amount in effect under Section 2503(b) of the Internal Revenue Code for the calendar year in which the taxable year begins.
(b)A contribution shall not be accepted if either of the following occurs:
(1)The contribution is not in cash.
(2)Except in the case of contributions under Section 529A(c)(1)(C) of the Internal Revenue Code, relating to change in designated beneficiaries or programs, the contribution to an ABLE account would result in aggregate contributions from all contributors to the ABLE account for the taxable year exceeding the amount in effect under Section 2503(b) of the Internal Revenue Code, relating to exclusion from gifts, for the calendar year in which the taxable year begins.
(c)The designated beneficiary shall retain ownership of all contributions made to the designated beneficiarys ABLE account to the date of utilization for qualified disability expenses, and all interest derived from the investment of the contributions to the designated beneficiarys ABLE account shall be deemed to be held in the ABLE program trust for the benefit of the designated beneficiary. Neither the contributions, nor any interest derived therefrom, may be pledged as collateral for any loan.
(d)The board shall develop adequate safeguards to prevent aggregate contributions on behalf of a designated beneficiary in excess of the maximum contribution limits necessary to provide for the qualified disability expenses of the designated beneficiary. For purposes of this subdivision, aggregate contributions include contributions under any prior qualified ABLE program of any state or agency or instrumentality thereof.
4880.Notwithstanding any other law, moneys in, contributions to, and any distribution for qualified disability expenses from, an ABLE account, not to exceed one hundred thousand dollars ($100,000), shall not count toward determining eligibility for a state or local means-tested program.
4881.(a)The board shall provide an annual listing of distributions to individuals with respect to an interest in an ABLE account to the Franchise Tax Board at a time and in a manner and form as specified by the Franchise Tax Board. The taxpayers identification numbers obtained in connection with an ABLE account shall be used exclusively for state and federal tax administration purposes.
(b)The board shall make a report to the appropriate individual of any distribution to any individual with respect to an interest in an ABLE account, at a time and in a form and manner as required by the Franchise Tax Board.
(c)The board shall report annually to each designated beneficiary all of the following:
(1)The value of the designated beneficiarys account.
(2)The interest earned thereon.
(3)The rate of return of the investments in the designated beneficiarys account for that reporting period.
(4)Information on investments and qualified disability expenses that designated beneficiaries can use to set savings goals and contribution amounts.
(d)The board shall provide a means for designated beneficiaries to express concerns or comments regarding the ABLE program trust and any information required to be reported by this section.
4882.(a)The board shall adopt regulations as it deems necessary to implement this chapter consistent with the federal Internal Revenue Code and regulations issued pursuant to that code to ensure that this program meets all criteria for federal tax-exempt benefits.
(b)The board may adopt regulations to implement this chapter as emergency regulations in accordance with the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code). The adoption of the regulations shall be deemed to be an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare.
4883.This act shall be construed liberally in order to effectuate its legislative intent. The purposes of this act and all of its provisions with respect to powers granted shall be broadly interpreted to effectuate the intent and purposes of the federal ABLE Act and not as a limitation of those powers.
4884.The board shall market this program to residents of the State of California to the extent funds are available to do so.
SEC. 3.This act shall only become effective if Assembly Bill 449 of the 201516 Regular Session is enacted and becomes effective.
Section 529A of the Internal Revenue Code, relating to qualified ABLE programs, added by Section 102 of Division B of Public Law 113-295, shall apply, except as otherwise provided.
(a)Section 529A of the Internal Revenue Code is modified as follows:
(1)By substituting the phrase under this part and Part 11 (commencing with Section 23001) in lieu of the phrase under this subtitle.
(2)By substituting Article 2 (commencing with Section 23731) in lieu of Section 511.
(b)A copy of the report required to be filed with the Secretary of the Treasury under Section 529A(d) of the Internal Revenue Code, relating to reports, shall be filed with the Franchise Tax Board at the same time and in the same manner as specified in that section.
SEC. 2.Section 23711.4 is added to the Revenue and Taxation Code, to read:23711.4.Section 529A of the Internal Revenue Code, relating to qualified ABLE programs, added by Section 102 of Division B of Public Law 113-295, shall apply, except as otherwise provided.
(a)Section 529A of the Internal Revenue Code is modified as follows:
(1)By substituting the phrase under Part 10 (commencing with Section 17001) and this part in lieu of the phrase under this subtitle.
(2)By substituting Article 2 (commencing with Section 23731) in lieu of Section 511.
(b)A copy of the report required to be filed with the Secretary of the Treasury under Section 529A(d) of the Internal Revenue Code, relating to reports, shall be filed with the Franchise Tax Board at the same time and in the same manner as specified in that section.
SEC. 3.Chapter 15 (commencing with Section 4875) is added to Division 4.5 of the Welfare and Institutions Code, to read:15.Qualified ABLE Program4875.For purposes of this chapter:
(a)ABLE account or account means the account an eligible individual makes contributions to established and owned by a designated beneficiary pursuant to this chapter for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account.
(b)ABLE Fund or fund means the fund established by this chapter for purposes of implementing the federal ABLE Act.
(b)Administrative fund means the fund used to administer this chapter.
(c)Board means the California ABLE Act Board established under this chapter.
(d)California ABLE Program Trust or ABLE program trust means the trust created pursuant to this chapter.
(c)
(e)Designated beneficiary means the eligible individual who established an ABLE account and is the owner of the account.
(d)
(f)Eligible individual means an individual who is eligible under the program for a taxable year if during that taxable year all both of the following criteria are met:
(1)The individual is entitled to benefits based on blindness or disability under Title II or XVI of the federal Social Security Act, and that blindness or disability occurred before the date on which the individual attained 26 years of age.
(2)A disability certification, as defined in the federal ABLE Act, with respect to the individual is filed pursuant to the requirements set forth in the federal ABLE Act.
(e)
(g)Federal ABLE act Act means the federal Stephen Beck Jr., Achieving a Better Life Experience Act of 2014.
(h)Investment management means the functions performed by a manager contracted to perform functions delegated by the board.
(i)Investment manager means a manager contracted to perform functions delegated by the board.
(j)Program fund means the program fund established by this chapter, which shall be held as a separate fund within the California ABLE Program Trust.
(f)
(k)Qualified ABLE Program or program means the program established by this chapter to implement the federal ABLE Act pursuant to Section 529A of the Internal Revenue Code.
(g)
(l)Qualified disability expenses means any expenses related to the eligible individuals blindness or disability that are made for the benefit of an eligible individual who is the designated beneficiary, including expenses related to 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 expenses, which are approved by the Secretary of the Treasury under regulations and consistent with the purposes of the federal ABLE Act.
4876.There is hereby created the California ABLE Act Board that consists of the Treasurer, 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 Chair of the State Independent Living Council, or their designees. The Treasurer shall serve as chair of the board.
4877.(a)There is hereby established in state government a Qualified ABLE Program and the ABLE Fund for purposes of implementing the federal ABLE Act pursuant to Section 529A of the Internal Revenue Code. created an instrumentality of the State of California to be known as the California ABLE Program Trust.
(b)The Qualified purposes, powers, and duties of the California ABLE Program shall be administered by the Treasurer, who shall be responsible to ensure that the program is administered in compliance with the requirements of the federal ABLE Act. Trust are vested in, and shall be exercised by, the board.
(c)(1)The ABLE Fund shall accept moneys from all ABLE accounts.
(2)The ABLE Act Board shall segregate moneys received by the ABLE Fund into two accounts, which shall be identified as the program account and the administrative account.
(A)Notwithstanding Section 13340 of the Government Code, the program account is hereby continuously appropriated, without regard to fiscal years, to the ABLE Act Board for the purposes specified in this act.
(B)Notwithstanding Section 13340 of the Government Code, the administrative account is hereby continuously appropriated, without regard to fiscal years, to the ABLE Act Board for administration of the act. Administrative costs shall not exceed 1 percent of the incoming funds for the fiscal year.
(d)Funding for startup and first-year administrative costs shall be appropriated from the General Fund in the annual Budget Act. The board shall repay, within five years, the amount appropriated, plus interest calculated at the rate earned by the Pooled Money Investment Account. Necessary administrative costs in future years shall be paid out of the administrative fund pursuant to subparagraph (B) of paragraph (2) of subdivision (c).
(c)The board, in the capacity of trustee, shall have the power and authority to do all of the following:
(1)Sue and be sued.
(2)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.
(3)Adopt a corporate seal and change and amend it from time to time.
(4)Cause moneys in the program fund to be held and invested and reinvested.
(5)Accept any grants, gifts, appropriations, and other moneys from any unit of federal, state, or local government or any other person, firm, partnership, or corporation for deposit to the administrative fund or the program fund. The board may not accept any contribution by any nonpublic entity, person, firm, partnership, or corporation that is not designated for a specified designated beneficiary.
(6)Enter into agreements with designated beneficiaries or eligible individuals to establish and maintain an ABLE account.
(7)Make provisions for the payment of costs of administration and operation of the ABLE program trust.
(8)Carry out the duties and obligations of the ABLE program trust pursuant to this chapter and the federal ABLE Act pursuant to Section 529A of the Internal Revenue Code and federal regulations issued pursuant to that code, and have any other powers as may be reasonably necessary for the effectuation of the purposes, objectives, and provisions of this chapter.
(9)Carry out studies and projections in order to advise designated beneficiaries or eligible individuals regarding present and estimated future qualified disability expenses and the levels of financial participation in the ABLE program trust required in order to assist designated beneficiaries or eligible individuals.
(10)Participate in any other way in any federal, state, or local governmental program for the benefit of the ABLE program trust.
(11)Promulgate, impose, and collect administrative fees and charges in connection with transactions of the ABLE program trust, and provide for reasonable service charges, including penalties for cancellations.
(12)Set minimum and maximum investment levels.
(13)Administer the funds of the ABLE program trust.
(14)Procure insurance against any loss in connection with the property, assets, or activities of the ABLE program trust.
(15)Procure insurance indemnifying any member of the board from personal loss or liability resulting from a members action or inaction as a member of the board.
(d)The Treasurer shall, on behalf of the board, appoint an executive director, who shall not be a member of the board and who shall serve at the pleasure of the board. The Treasurer shall determine the duties of the executive director and other staff as necessary and set his or her compensation. The board may authorize the executive director to enter into contracts on behalf of the board or conduct any business necessary for the efficient operation of the board.
4878.Under the program, a person may make contributions for a taxable year, for the benefit of an individual who is an eligible individual for that taxable year, to an ABLE account that is established for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account, if all of the following criteria are met:
(a)The designated beneficiary is limited to one ABLE account for purposes of this chapter.
(b)The ABLE account is established only for a designated beneficiary who is a resident of this state.
4879.The Treasurer may adopt regulations to implement this chapter.
4880.Notwithstanding any other law, moneys in, contributions to, and any distribution for qualified disability expenses from, an ABLE account, not to exceed one hundred thousand dollars ($100,000) shall not count toward determining eligibility for the Medi-Cal program pursuant to Chapter 7 (commencing with Section 14000) of Part 3 of Division 9.
4878.(a)The board shall segregate moneys received by the ABLE program trust into two funds, which shall be identified as the program fund and the administrative fund.
(1)Notwithstanding Section 13340 of the Government Code, the program fund is hereby continuously appropriated, without regard to fiscal years, to the ABLE Act Board for the purposes specified in this act.
(2)Notwithstanding Section 13340 of the Government Code, the administrative fund is hereby continuously appropriated, without regard to fiscal years, to the ABLE Act Board for administration of the act. Administrative costs shall not exceed 3 percent of the incoming funds for each fiscal year for the first five fiscal years following the opening of the first ABLE Act account. After the five-year period, administrative costs shall not exceed 1 percent of the incoming funds for each fiscal year.
(3)Funding for startup and administrative costs for the board shall be provided in the form of a loan from the General Fund sufficient to cover the boards projected administrative costs for its first two years of implementing the program. Once the loan has been expended and revenues from the program are sufficient to cover the boards ongoing costs, the board shall repay, within five years, the amount loaned, plus interest calculated at the rate earned by the Pooled Money Investment Account.
(b)Not later than 30 days after the close of each month, the investment manager shall place on file for public inspection during business hours a report with respect to investment performance. The investment manager shall report the following information, to the extent applicable, to the board within 30 days following the end of each month:
(1)The type of investment, name of the issuer, date of maturity, and the par and dollar amount invested in each security, investment, and money within the program fund.
(2)The weighted average maturity of the investments within the program fund.
(3)Any amounts in the program fund that are under the management of an investment manager.
(4)The market value as of the date of the report and the source of this valuation for any security within the program fund.
(5)A description of the compliance with the statement of investment policy.
(c)Moneys in the program fund may be invested or reinvested by the Treasurer or may be invested in whole or in part under contract with an investment manager, as determined by the board.
(d)The board shall annually prepare and adopt a written statement of investment policy. The board shall consider the statement of investment policy and any changes in the investment policy at a public hearing. The board shall approve the investment management entity or entities consistent with subdivision (c).
(e)Transfers may be made from the program fund to the administrative fund for the purpose of paying operating costs associated with administering the ABLE program trust and as required by this chapter. All costs of administration of the ABLE program trust shall be paid out of the administrative fund.
(f)All moneys paid by designated beneficiaries or eligible individuals in connection with ABLE accounts shall be deposited as received into the program fund, and shall be promptly invested and accounted for separately. Deposits and interest thereon accumulated on behalf of designated beneficiaries in the program fund of the ABLE program trust may be used for qualified disability expenses.
(g)The board shall maintain separate accounting for each designated beneficiary.
(h)Any designated beneficiary may, directly or indirectly, direct the investment of any contributions to his or her ABLE account, or any earnings thereon, no more than two times in any calendar year.
(i)The assets of the trust, including the program fund, shall at all times be preserved, invested, and expended solely and only for the purposes of the trust and shall be held in trust for the designated beneficiaries and no property rights therein shall exist in favor of the state. The assets shall not be transferred or used by the state for any purposes other than the purposes of the trust and consistent with the provisions of the federal ABLE Act.
4879.(a)Under the program, a person may make contributions for a taxable year, for the benefit of an individual who is an eligible individual for that taxable year, to an ABLE account that is established for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account if both of the following criteria are met:
(1)The designated beneficiary is limited to one ABLE account for purposes of this chapter.
(2)The ABLE account is established only for a designated beneficiary who is a resident of this state.
(b)A contribution to any ABLE account shall not be accepted unless one of the following conditions is satisfied:
(1)The contribution is in cash.
(2)Except in the case of contributions under Section 529A(c)(1)(C) of the Internal Revenue Code, if the contribution to an ABLE account would result in aggregate contributions from all contributors to the ABLE account for the taxable year exceeding the amount in effect under Section 2503(b) of the Internal Revenue Code for the calendar year in which the taxable year begins.
(c)The designated beneficiary shall retain ownership of all contributions made to the designated beneficiarys ABLE account to the date of utilization for qualified disability expenses, and all interest derived from the investment of the contributions to the designated beneficiarys ABLE account shall be deemed to be held in the ABLE program trust for the benefit of the designated beneficiary. Neither the contributions, nor any interest derived therefrom, may be pledged as collateral for any loan.
(d)The board shall develop adequate safeguards to prevent aggregate contributions on behalf of a designated beneficiary in excess of the maximum contribution limits necessary to provide for the qualified disability expenses of the designated beneficiary. For purposes of this subdivision, aggregate contributions include contributions under any prior qualified ABLE program of any state or agency or instrumentality thereof.
4880.Notwithstanding any other law, moneys in, contributions to, and any distribution for qualified disability expenses from, an ABLE account, not to exceed one hundred thousand dollars ($100,000), shall not count toward determining eligibility for a state or local means-tested program.
4881.(a)The board shall provide an annual listing of distributions to individuals with respect to an interest in an ABLE account to the Franchise Tax Board at a time and in a manner and form as specified by the Franchise Tax Board. The taxpayers identification numbers obtained in connection with an ABLE account shall be used exclusively for state and federal tax administration purposes.
(b)The board shall make a report to the appropriate individual of any distribution to any individual with respect to an interest in an ABLE account, at a time and in a form and manner as required by the Franchise Tax Board.
(c)The board shall report annually to each designated beneficiary all of the following:
(1)The value of the designated beneficiarys account.
(2)The interest earned thereon.
(3)The rate of return of the investments in the designated beneficiarys account for that reporting period.
(4)Information on investments and qualified disability expenses that designated beneficiaries can use to set savings goals and contribution amounts.
(d)The board shall provide a means for designated beneficiaries to express concerns or comments regarding the ABLE program trust and any information required to be reported by this section.
4882.(a)The board shall adopt regulations as it deems necessary to implement this chapter consistent with the federal Internal Revenue Code and regulations issued pursuant to that code to ensure that this program meets all criteria for federal tax-exempt benefits.
(b)The board may adopt regulations to implement this chapter as emergency regulations in accordance with the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code). The adoption of the regulations shall be deemed to be an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare.
4883.This act shall be construed liberally in order to effectuate its legislative intent. The purposes of this act and all of its provisions with respect to powers granted shall be broadly interpreted to effectuate the intent and purposes of the federal ABLE Act and not as a limitation of those powers.
4884.The board shall market this program to residents of the State of California to the extent funds are available to do so.
Section 529A of the Internal Revenue Code, relating to qualified ABLE programs, added by Section 102 of Division B of Public Law 113-295, shall apply, except as otherwise provided.
(a)Section 529A of the Internal Revenue Code is modified as follows:
(1)By substituting the phrase under this part and Part 11 (commencing with Section 23001) in lieu of the phrase under this subtitle.
(2)By substituting Article 2 (commencing with Section 23731) in lieu of Section 511.
(b)A copy of the report required to be filed with the Secretary of the Treasury under Section 529A(d) of the Internal Revenue Code, relating to reports, shall be filed with the Franchise Tax Board at the same time and in the same manner as specified in that section.
SEC. 2.Section 23711.4 is added to the Revenue and Taxation Code, to read:23711.4.Section 529A of the Internal Revenue Code, relating to qualified ABLE programs, added by Section 102 of Division B of Public Law 113-295, shall apply, except as otherwise provided.
(a)Section 529A of the Internal Revenue Code is modified as follows:
(1)By substituting the phrase under Part 10 (commencing with Section 17001) and this part in lieu of the phrase under this subtitle.
(2)By substituting Article 2 (commencing with Section 23731) in lieu of Section 511.
(b)A copy of the report required to be filed with the Secretary of the Treasury under Section 529A(d) of the Internal Revenue Code, relating to reports, shall be filed with the Franchise Tax Board at the same time and in the same manner as specified in that section.
SEC. 3.Chapter 15 (commencing with Section 4875) is added to Division 4.5 of the Welfare and Institutions Code, to read:15.Qualified ABLE Program4875.For purposes of this chapter:
(a)ABLE account or account means the account an eligible individual makes contributions to pursuant to this chapter for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account.
(b)ABLE Fund or fund means the fund established by this chapter for purposes of implementing the federal ABLE act. Act.
(c)Designated beneficiary means the eligible individual who established an ABLE account and is the owner of the account.
(d)Eligible individual means an individual who is eligible under the program for a taxable year if during that taxable year all of the following criteria are met:
(1)The individual is entitled to benefits based on blindness or disability under Title II or XVI of the federal Social Security Act, and that blindness or disability occurred before the date on which the individual attained 26 years of age.
(2)A disability certification, as defined in the federal ABLE Act, with respect to the individual is filed pursuant to the requirements set forth in the federal ABLE Act.
(e)Federal ABLE act means the federal Stephen Beck Jr., Achieving a Better Life Experience Act of 2014.
(f)Qualified ABLE Program or program means the program established by this chapter to implement the federal ABLE act pursuant to Section 529A of the Internal Revenue Code.
(g)Qualified disability expenses means any expenses related to the eligible individuals blindness or disability that are made for the benefit of an eligible individual who is the designated beneficiary, including expenses related to 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 expenses, which are approved by the Secretary of the Treasury under regulations and consistent with the purposes of the federal ABLE Act.
4876.There is hereby created the ABLE Act Board that consists of the Treasurer, 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, or their designees.
4876.4877.(a)There is hereby established in state government a Qualified ABLE Program and the Qualified ABLE Fund for purposes of implementing the federal ABLE act pursuant to Section 529A of the Internal Revenue Code.
(b)The Qualified ABLE Program shall be administered by the Treasurer, who shall be responsible to ensure that the program is administered in compliance with the requirements of the federal ABLE Act.
(c)(1)The ABLE Fund shall accept moneys from all ABLE accounts.
(2)The ABLE Act Board shall segregate moneys received by the ABLE Fund into two accounts, which shall be identified as the program account and the administrative account.
(A)Notwithstanding Section 13340 of the Government Code, the program account is hereby continuously appropriated, without regard to fiscal years, to the ABLE Act Board for the purposes specified in this act.
(B)Notwithstanding Section 13340 of the Government Code, the administrative account is hereby continuously appropriated, without regard to fiscal years, to the ABLE Act Board for administration of the act. Administrative costs shall not exceed 1 percent of the incoming funds for the fiscal year.
(d)Funding for startup and first-year administrative costs shall be appropriated from the General Fund in the annual Budget Act. The board shall repay, within five years, the amount appropriated, plus interest calculated at the rate earned by the Pooled Money Investment Account. Necessary administrative costs in future years shall be paid out of the administrative fund pursuant to subparagraph (B) of paragraph (2) of subdivision (c).
4877.4878.Under the program, a person may make contributions for a taxable year, for the benefit of an individual who is an eligible individual for that taxable year, to an ABLE account that is established for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account, if all of the following criteria are met:
(a)The designated beneficiary is limited to one ABLE account for purposes of this chapter.
(b)The ABLE account is established only for a designated beneficiary who is a resident of this state.
4878.4879.The Treasurer may adopt regulations to implement this chapter.
4879.4880.Notwithstanding any other law, moneys in in, contributions to, and any distribution for qualified disability expenses from, an ABLE account, not to exceed one hundred thousand dollars ($100,000) shall not count toward determining eligibility for the Medi-Cal program pursuant to Chapter 7 (commencing with Section 14000) of Part 3 of Division 9.
Section 529A of the Internal Revenue Code, relating to qualified ABLE programs, as enacted by Section 102 of added by Section 102 of Division B of Public Law 113-295, shall apply, except as otherwise provided.
(a)Section 529A of the Internal Revenue Code is modified as follows:
(1)By substituting the phrase under this part and Part 11 (commencing with Section 23001) in lieu of the phrase under this subtitle.
(2)By substituting Article 2 (commencing with Section 23731) in lieu of Section 511.
(b)A copy of the report required to be filed with the Secretary of the Treasury under Section 529A(g) of the Internal Revenue Code 529A(d) of the Internal Revenue Code, relating to reports, shall be filed with the Franchise Tax Board at the same time and in the same manner as specified in that section.
SEC. 2.Section 23711.4 is added to the Revenue and Taxation Code, to read:23711.4.Section 529A of the Internal Revenue Code, relating to qualified ABLE programs, as enacted by Section 102 of added by Section 102 of Division B of Public Law 113-295, shall apply, except as otherwise provided.
(a)Section 529A of the internal Revenue Code is modified as follows:
(1)By substituting the phrase under Part 10 (commencing with Section 17001) and this part in lieu of the phrase under this subtitle.
(2)By substituting Article 2 (commencing with Section 23731) in lieu of section 511.
(b)A copy of the report required to be filed with the Secretary of the Treasury under Section 529A(g) of the Internal Revenue Code 529A(d) of the Internal Revenue Code, relating to reports, shall be filed with the Franchise Tax Board at the same time and in the same manner as specified in that section.
SEC. 3.Chapter 15 (commencing with Section 4875) is added to Division 4.5 of the Welfare and Institutions Code, to read:15.Qualified ABLE Program4875.For purposes of this chapter:
(a)ABLE account or account means the account an eligible individual makes contributions to pursuant to this chapter for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account.
(b)ABLE fund Fund or fund means the fund established by this chapter for purposes of implementing the federal ABLE act.
(c)Designated beneficiary means the eligible individual who established an ABLE account and is the owner of the account.
(d)Eligible individual means an individual who is eligible under the program for a taxable year if during that taxable year all of the following criteria are met:
(1)The individual is entitled to benefits based on blindness or disability under Title II or XVI of the federal Social Security Act, and that blindness or disability occurred before the date on which the individual attained 26 years of age.
(2)A disability certification, as defined in the federal ABLE act, with respect to the individual is filed pursuant to the requirements set forth in the federal ABLE act.
(e)Federal ABLE act means the federal Stephen Beck Jr., Achieving a Better Life Experience Act of 2014.
(f)Qualified ABLE program Program or program means the program established by this chapter to implement the federal ABLE act pursuant to Section 529A of the Internal Revenue Code.
(g)Qualified disability expenses means any expenses related to the eligible individuals blindness or disability that are made for the benefit of an eligible individual who is the designated beneficiary, including expenses related to 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 expenses, which are approved by the Secretary of the Treasury under regulations and consistent with the purposes of the federal ABLE act.
4876.(a)There is hereby established in state government a qualified ABLE program Qualified ABLE Program and the Qualified ABLE Fund for purposes of implementing the federal ABLE act pursuant to Section 529A of the Internal Revenue Code.
(b)The qualified ABLE program Qualified ABLE Program shall be administered by the Treasurer, who shall be responsible to ensure that the program is administered in compliance with the requirements of the federal ABLE act.
4877.Under the program, a person may make contributions for a taxable year, for the benefit of an individual who is an eligible individual for that taxable year, to an ABLE account that is established for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account, if all of the following criteria are met:
(a)The designated beneficiary is limited to one ABLE account for purposes of this chapter.
(b)The ABLE account is established only for a designated beneficiary who is a resident of this state.
4878.The Treasurer may adopt regulations to implement this chapter.
4879.Notwithstanding any other law, moneys in an ABLE account, not to exceed one hundred thousand dollars ($100,000) shall not count toward determining eligibility for the Medi-Cal program pursuant to Chapter 7 (commencing with Section 14000) of Part 3 of Division 9.
Section 529A of the Internal Revenue Code, relating to qualified ABLE programs, as enacted by Section 102 of Public Law 113-295, shall apply, except as otherwise provided.
(a)Section 529A of the Internal Revenue Code is modified as follows:
(1)By substituting the phrase under this part and Part 11 (commencing with Section 23001) in lieu of the phrase under this subtitle.
(2)By substituting Article 2 (commencing with Section 23731) in lieu of Section 511.
(b)A copy of the report required to be filed with the Secretary of the Treasury under Section 529A(g) of the Internal Revenue Code shall be filed with the Franchise Tax Board at the same time and in the same manner as specified in that section.
SEC. 2.Section 23711.4 is added to the Revenue and Taxation Code, to read:23711.4.Section 529A of the Internal Revenue Code, relating to qualified ABLE programs, as enacted by Section 102 of Public Law 113-295, shall apply, except as otherwise provided.
(a)Section 529A of the internal Revenue Code is modified as follows:
(1)By substituting the phrase under Part 10 (commencing with Section 17001) and this part in lieu of the phrase under this subtitle.
(2)By substituting Article 2 (commencing with Section 23731) in lieu of section 511.
(b)A copy of the report required to be filed with the Secretary of the Treasury under Section 529A(g) of the Internal Revenue Code shall be filed with the Franchise Tax Board at the same time and in the same manner as specified in that section.
SEC. 3.Chapter 15 (commencing with Section 4875) is added to Division 4.5 of the Welfare and Institutions Code, to read:15.Qualified ABLE Program4875.For purposes of this chapter:
(a)ABLE account or account means the account an eligible individual makes contributions to pursuant to this chapter for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account.
(b)ABLE fund or fund means the fund established by this chapter for purposes of implementing the federal ABLE act.
(c)Designated beneficiary means the eligible individual who established an ABLE account and is the owner of the account.
(d)Eligible individual means an individual who is eligible under the program for a taxable year if during that taxable year all of the following criteria are met:
(1)The individual is entitled to benefits based on blindness or disability under Title II or XVI of the federal Social Security Act, and that blindness or disability occurred before the date on which the individual attained 26 years of age.
(2)A disability certification, as defined in the federal ABLE act, with respect to the individual is filed pursuant to the requirements set forth in the federal ABLE act.
(e)Federal ABLE act means the federal Stephen Beck Jr., Achieving a Better Life Experience Act of 2014.
(f)Qualified ABLE program or program means the program established by this chapter to implement the federal ABLE act pursuant to Section 529A of the Internal Revenue Code.
(g)Qualified disability expenses means any expenses related to the eligible individuals blindness or disability that are made for the benefit of an eligible individual who is the designated beneficiary, including expenses related to 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 expenses, which are approved by the Secretary of the Treasury under regulations and consistent with the purposes of the federal ABLE act.
4876.(a)There is hereby established in state government a qualified ABLE program and the Qualified ABLE Fund for purposes of implementing the federal ABLE act pursuant to Section 529A of the Internal Revenue Code.
(b)The qualified ABLE program shall be administered by the Treasurer, who shall be responsible to ensure that the program is administered in compliance with the requirements of the federal ABLE act.
4877.Under the program, a person may make contributions for a taxable year, for the benefit of an individual who is an eligible individual for that taxable year, to an ABLE account that is established for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account, if all of the following criteria are met:
(a)The designated beneficiary is limited to one ABLE account for purposes of this chapter.
(b)The ABLE account is established only for a designated beneficiary who is a resident of this state.
4878.The Treasurer may adopt regulations to implement this chapter.
|
Date
|
Status
|
|---|---|
| Sep 8, 2015 | In Senate. Concurrence in Assembly amendments pending. |
| Aug 17, 2015 | From committee with author's amendments. Read second time and amended. Re-referred to Com. on APPR. |
| Aug 19, 2015 | August 19 hearing postponed by committee. |
| Aug 26, 2015 | August 26 set for first hearing. Placed on APPR. suspense file. |
| Aug 27, 2015 | Joint Rule 62(a) suspended. |
| Aug 28, 2015 | From committee: Do pass. (Ayes 17. Noes 0.) (August 27). |
| Aug 28, 2015 | Read second time. Ordered to third reading. |
| Sep 4, 2015 | Ordered to third reading. |
| Sep 4, 2015 | Read third time and amended. |
| Jul 15, 2015 | Read second time and amended. Re-referred to Com. on APPR. |
| Sep 8, 2015 | Read third time. Passed. Ordered to the Senate. |
| Sep 8, 2015 | Read third time. Passed. (Ayes 79. Noes 0. Page 2953.) Ordered to the Senate. |
| Sep 10, 2015 | Assembly amendments concurred in. (Ayes 39. Noes 0.) Ordered to engrossing and enrolling. |
| Sep 10, 2015 | Assembly amendments concurred in. (Ayes 40. Noes 0. Page 2664.) Ordered to engrossing and enrolling. |
| Sep 10, 2015 | Assembly amendments concurred in. (Ayes 40. Noes 0.) Ordered to engrossing and enrolling. |
| Sep 11, 2015 | Enrolled and presented to the Governor at 10:45 p.m. |
| Oct 11, 2015 | Approved by the Governor. |
| Oct 11, 2015 | Chaptered by Secretary of State. Chapter 796, Statutes of 2015. |
| May 28, 2015 | From committee: Do pass. (Ayes 7. Noes 0. Page 1151.) (May 28). |
| Feb 24, 2015 | From printer. May be acted upon on or after March 26. |
| Mar 5, 2015 | Referred to Com. on GOV. & F. |
| Mar 19, 2015 | Set for hearing April 8. |
| Apr 14, 2015 | From committee: Do pass as amended and re-refer to Com. on APPR. (Ayes 7. Noes 0. Page 524.) (April 8). |
| Apr 15, 2015 | Read second time and amended. Re-referred to Com. on APPR. |
| Apr 21, 2015 | Set for hearing April 27. |
| Apr 27, 2015 | April 27 hearing: Placed on APPR. suspense file. |
| May 23, 2015 | Set for hearing May 28. |
| Feb 23, 2015 | Introduced. Read first time. To Com. on RLS. for assignment. To print. |
| May 28, 2015 | From committee: Do pass. (Ayes 7. Noes 0.) (May 28). |
| May 28, 2015 | Read second time. Ordered to third reading. |
| Jun 1, 2015 | Read third time. Passed. (Ayes 40. Noes 0. Page 1200.) Ordered to the Assembly. |
| Jun 1, 2015 | Read third time. Passed. (Ayes 40. Noes 0.) Ordered to the Assembly. |
| Jun 2, 2015 | In Assembly. Read first time. Held at Desk. |
| Jun 15, 2015 | Referred to Com. on REV. & TAX. |
| Jul 13, 2015 | July 13 set for first hearing. Placed on REV. & TAX. suspense file. |
| Jul 14, 2015 | From committee: Do pass as amended and re-refer to Com. on APPR. (Ayes 9. Noes 0.) (July 13). |
|
Date
|
Description
|
Location
|
Votes
|
|
|---|---|---|---|---|
| Sep 10, 2015 | Unfinished Business SB324 Pavley Concurrence | Senate Floor |
Passed |
|
| Sep 8, 2015 | SB 324 Pavley Senate Third Reading By IRWIN | Assembly Floor |
Passed |
|
| Aug 27, 2015 | Do pass. | Assembly Standing Committee on Appropriations |
Passed |
|
| Jul 13, 2015 | Do pass as amended and be re-referred to the Committee on [Appropriations] | Assembly Standing Committee on Revenue and Taxation |
Passed |
|
| Jun 1, 2015 | Senate 3rd Reading SB324 Pavley | Senate Floor |
Passed |
|
| May 28, 2015 | Do pass | Senate Standing Committee on Appropriations |
Passed |
|
| Apr 27, 2015 | Placed on suspense file | Senate Standing Committee on Appropriations |
Passed |
|
| Apr 8, 2015 | Do pass as amended, but first amend, and re-refer to the Committee on [Appropriations] | Senate Standing Committee on Governance and Finance |
Passed |
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
|
Organization
|
Position
|
Date
|
|---|---|---|
| Association Of Regional Center Agencies | ** Support | Sep 8, 2015 |
| Autism Speaks | ** Support | Sep 8, 2015 |
| Board of Governors of the California Community Colleges | ** Support | Sep 4, 2015 |
| California Association For Health Services At Home | ** Support | Sep 8, 2015 |
| California Disability Services Association | ** Support | Sep 8, 2015 |
| California Foundation For Independent Living Centers | ** Support | Sep 4, 2015 |
| California Taxpayers' Association | ** Support | Sep 8, 2015 |
| Down Syndrome Society of Orange County | ** Support | Sep 8, 2015 |
| National Down Syndrome Society | ** Support | Sep 8, 2015 |
| North Los Angeles County Regional Center | ** Support | Sep 4, 2015 |
| State Council on Developmental Disabilities | ** Support | Sep 4, 2015 |
| State of California, Treasurer | ** Support | Sep 4, 2015 |
| State Treasurer John Chiang | ** Support | Sep 8, 2015 |
| The Arc and United Cerebral Palsy | ** Support | Sep 8, 2015 |
SB 324
Page 5
|
Office of Senate Floor Analyses (916) 651-1520 Fax: (916) 327-4478 |
UNFINISHED BUSINESS
Bill No: SB 324
Amended: 9/4/15
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
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.
Existing law:
Does not automatically conform to changes to federal tax law, except for specific retirement provisions.
Conforms to federal law as of a specified date, currently January 1, 2009.
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.”
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.
Applies income and asset tests for some programs allowing disabled individuals to receive Medi-Cal benefits.
This bill:
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.
Creates the California ABLE Act Board (Board), consisting of the following, or their designees:
The State Treasurer, as Chair,
The Director of Finance,
The State 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.
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.
Limits accounts to one per individual,
Allows accounts only for residents of the state,
Requires contributions to be in cash,
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
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.
Requires the Board to:
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.
Report specified information to each designated beneficiary.
Provide a means for designated beneficiaries to express concerns, or comments regarding the ABLE program trust as well as any other information.
Defines several terms, including:
“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.
“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.
States that its provisions shall be liberally construed to effectuate its intent.
Provides that its provisions only go into effect should AB 449 (Irwin) also be enacted.
Background
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.: Yes Local: 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.
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
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
Prepared by: Colin Grinnell / GOV. & F. / (916) 651-4119
9/8/15 21:55:26
**** END ****
SB 324
Page 6
SENATE THIRD READING
SB 324
(Pavley)
As Amended September 4, 2015
Majority vote
SENATE VOTE: 40-0
Committee |
Votes |
Ayes |
Noes |
Revenue & Taxation |
9-0 |
Ting, Brough, Dababneh, Gipson, Roger Hernández, Mullin, Patterson, Quirk, Wagner |
|
Appropriations |
17-0 |
Gomez, Bigelow, Bloom, Bonta, Calderon, Chang, Nazarian, Eggman, Gallagher, Eduardo Garcia, Holden, Jones, Quirk, Rendon, Wagner, Weber, Wood |
|
SUMMARY: Establishes a California Achieving a Better Life Experience (ABLE) program, and generally conforms income tax law to the federal income tax treatment of ABLE accounts. Specifically, this bill:
Conforms, on or after January 1, 2016, the Personal Income Tax (PIT) Law to the Internal Revenue Code (IRC) Section 529A, relating to qualified ABLE programs.
Reduces the penalty for unqualified distributions from 10% to 2.5% for state purposes.
Provides that a copy of the report required to be filed with the Secretary of the Treasury (Secretary) under IRC Section 529A shall be filed, at the same time and in the same manner, with the Franchise Tax Board (FTB).
Creates the California ABLE Act Board (board) that consists of the Treasurer, the Director of Finance, the State Controller, the Director of Development Services, the Chairperson of the State Council of Developmental Disabilities, the Director of Rehabilitation, and the Chair of the State Independent Living Council, or their designees. The Treasurer shall serve as chair of the board.
Allows a person to make contributions for a taxable year, for the benefit of an eligible individual for that taxable year, to an ABLE account that is established for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account, if all of the following are met:
The designated beneficiary is limited to one ABLE account; and,
The ABLE account is established only for a designated beneficiary who is a resident of California.
Provides that a contribution shall not be accepted if either of the following occur:
The contribution is not in cash; or,
Except in the case of contributions under IRC Section 529A(c)(1)(C), the contribution to an ABLE account would result in aggregate contributions from all contributors to the ABLE account for the taxable year exceeding the amount in effect under IRC Section 2503(b) for the calendar year in which the taxable year begins.
Provides that the designated beneficiary shall retain ownership of all contributions made to the designated beneficiary's ABLE account to the date of utilization for qualified disability expenses, and all interest derived from the investment of the contributions to the designated beneficiary's ABLE account shall be deemed to be held in the ABLE program trust for the benefit of the designated beneficiary. Contributions may not be pledged as collateral for any loan.
Requires the board to develop adequate safeguards to prevent aggregate contributions on behalf of a designated beneficiary in excess of the maximum contribution limits necessary to provide for the qualified disability expenses of the designated beneficiary.
Requires the board to provide an annual listing of distributions to individuals with respect to an interest in an ABLE account to the FTB at a time and in a manner and form as specified by the FTB.
Requires the board to make a report to the appropriate individual of any distribution to any individual with respect to an interest in an ABLE account, at a time and in a form and manner as required by the FTB.
Requires the board to report the following to each designated beneficiary on an annual basis:
The value of the designated beneficiary's account;
earned interest;
The rate of return of the investments in the designated beneficiary's account for that reporting period; and,
Information on investments and qualified disability expenses that designated beneficiaries can use to set savings goals and contribution amounts.
Requires the board to provide a means for designated beneficiaries to express concerns or comments regarding the ABLE program trust and any information required to be reported by this section.
Provides that the ABLE program shall be construed liberally in order to effectuate its legislative intent.
Defines an "ABLE account" or an "account" as an account established and owned by a designated beneficiary for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account.
Defines "administrative fund" as a fund used to administer the ABLE program.
Defines "board" as the California ABLE Act Board.
Defines the "California ABLE Program Trust" or "ABLE Program trust" as the trust created pursuant to the ABLE program.
Defines an "eligible individual" as an individual who is eligible under a qualified ABLE program for a taxable year if during that taxable year both of the following are met:
The individual is entitled to benefits based on blindness or disability under Title II or XVI of the federal Social Security Act, and that blindness or disability occurred before the date on which the individual attained the age of 26; and,
A disability certification, as defined in the federal ABLE Act, is filed pursuant to the requirements set forth in the federal ABLE Act.
Defines a "designated beneficiary" as the eligible individual who established an ABLE account and is the owner of the account.
Defines the "federal ABLE Act" as the federal Stephen Beck Jr., Achieving a Better Life Experience Act of 2014.
Defines "investment management" as the functions performed by a manager contracted to perform functions delegated by the board.
Defines "investment manager" as a manager contracted to perform functions delegated by the board.
Defines "program fund" as a separate fund held within the California ABLE Program Trust.
Defines a "qualified ABLE program" or a "program" as a program established to implement the federal ABLE act pursuant to IRC Section 529A.
Defines "qualified disability expenses" as any expenses related to the eligible individual's blindness or disability that are made for the benefit of an eligible individual who is the designated beneficiary. These expenses 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, expenses for oversight and monitoring, funeral and burial expenses, and other expenses, which are approved by the Secretary of the Treasury under regulations and consistent with the purposes of the federal ABLE Act.
Provides that this bill shall only become effective if AB 449 (Irwin of the current legislative session is enacted.
FISCAL EFFECT: According to the Assembly Appropriations Committee:
1) One-time costs likely in excess of $500,000 to the Treasurer to establish the ABLE Act program; annual administrative costs in the range of $300,000 to $400,000 to the Treasurer thereafter to administer the program. Initial funds will be provided by way of General Fund (GF) loan, potentially as high as $1.5 million, which will be repaid within five years. Thereafter, the program will be funded through administrative fees.
2) Potentially significant administrative costs to the FTB.
3) Estimated GF revenue decreases of $100,000, $400,000, and $900,000 in Fiscal Year (FY) 2015-16, FY 2016-17, and FY 2017-18, respectively; additional decreases thereafter.
4) Substantial increase in MediCal costs as a result of exempting ABLE assets, thus expanding the population of eligible recipients. Each new MediCal participant results in annual costs of approximately $40,000, half of which is paid for with state funds and half federal.
The FTB estimates general fund revenue loss of $100,000 in FY 2015-16, $400,000 in FY 2016-17, and $900,000 in FY 2017-18.
COMMENTS:
Author's Statement: The author has provided the following statement in support of this bill:
In the United States, there are multiple financial tools for individuals to be able to save for future expenses (e.g. college savings accounts, health savings accounts, and individual retirement accounts).
However, millions of individuals with disabilities and their families are unable to use these accounts. Currently, individuals with disabilities may only have less than $2,000 in assets in order to have access to critical support programs such as SSI, SNAP, or Medicaid.
Thus, in order to be able to access these programs, individuals with disabilities must remain poor, and cannot plan and save for large future expenses.
In December 2014, President Obama signed the Achieving a Better Life Experience (ABLE) Act into law. The California Legislature had previously urged Congress to pass federal legislation establishing these savings accounts in 2010 [SJR 31 (Pavley), Chapter 54, Statutes of 2010] and 2012 [SJR 18 (Pavley), Chapter 62, Statutes of 2012).
The federal ABLE Act creates tax-free savings accounts for individuals with disabilities and their families. These accounts will be able to fund a variety of needed expenses such as medical and dental care, housing, and education. The act also authorized each state to create ABLE programs to provide these savings accounts.
SB 324 will allow people with disabilities to achieve a better life experience in California by establishing an ABLE program within the State Treasurer's office.
Splitting the ABLE Program. Both this bill and AB 449 contained identical language establishing the California ABLE Program. The authors have agreed to split the provisions of the bill. The recent amendments deleted from this bill will be included in AB 449.
What Does the ABLE Act Do? The ABLE Act allows individual states to establish ABLE programs, under which a blind or disabled person may establish a tax-favored savings account that may accept contributions and make distributions for the individual to pay certain qualifying disability expenses. Assets in an ABLE account, up to a $100,000, are not taken into account when determining eligibility for federal welfare benefit programs. Furthermore, the structure and tax treatment of the account generally follows the same rules as a 529 educational savings account. In this regard, after-tax contributions are placed in the account, amounts earned in the account are tax-deferred, and distributions are not included in income so long as they are used for qualifying disability expenses.
Substantial Benefits: The new ABLE program provides disabled individuals and their families with two primary benefits. First, the program dramatically expands eligibility for federal and state welfare programs by eliminating asset tests for many of the means-tested welfare programs. By excluding up to $100,000 in an ABLE account from means-tested federal programs, disabled individuals who may not have qualified for Supplemental Security Income (SSI) or Medicaid in the past can now receive benefits. Second, the program provides an alternative, but not necessarily a replacement, to more expensive and more complicated special needs trusts currently being used to shield assets.
ABLE Accounts are Excluded from Federal and State Means Testing: One of the largest benefits afforded by the ABLE Act is the ability to exclude certain assets from federal means-tested programs. As an example, in order for an individual to obtain SSI, the countable resources must be worth not more than $2,000 for an individual or $3,000 for a couple. In essence, the ABLE Act has increased countable assets from $2,000 to $100,000 for disabled individuals seeking eligibility for SSI.
Alternative to Special Needs Trusts: If the goal was to merely increase the cap on assets that disabled individuals can hold to qualify for various federal means-tested programs, it would have been easier for the federal government to simply increase asset limitations instead of creating 529 accounts that exclude assets from means-tested programs. It appears that the ABLE act may have also attempted to address the more legally technical and potentially expensive use of Special/Supplemental Needs Trust. A special needs trust is a specific type of trust that can be created by a parent or guardian to benefit a person with a disability. The goal of a special needs trust is to allow a person with a disability to benefit from funds placed in the trust while, at the same time, receiving public benefit. Depending on how the trust is created, different restrictions apply.
There are primarily two types of special needs trusts: first-party trusts and third-party trusts. A first-party trust is a trust that is funded with assets owned by the beneficiary. Most first-party trusts that hold the beneficiary's assets are considered countable resources for federal means-tested programs. However, the Medicaid program provides for the creation of certain first-party trust that can be funded with the beneficiary's own assets, which will not be counted towards Medicaid's asset test. These types of trusts are "D-4A Special Needs Trusts", named after the federal code section. These accounts require that some or all of the income remaining be paid to the state equal to the total medical assistance paid to the beneficiary.
The second category of special needs trust is a third-party trust, which is a trust that is funded by assets of a person other than the beneficiary. These trusts, if properly drafted, are generally not countable as an asset available to the beneficiary for SSI or Medicaid purposes. Appropriate operative language must be used so that the assets are not counted for Medicaid purposes. Additionally, unlike first-party trusts, the government is not entitled to recover expenses of SSI or Medicaid paid to the beneficiary.
The ABLE Act specifically provides that in the event the beneficiary dies, all amounts remaining in the ABLE account not in excess of the amount equal to the medical assistance paid to the beneficiary shall be distributed to the state. Additionally, a contribution to an ABLE account is treated as a completed gift to the beneficiary of the account. Unlike first-party trusts, ABLE accounts do not require specialized attorneys to ensure that the beneficiary remains eligible for federal benefits. It appears, therefore, that the ABLE Act provides a less complicated and less expensive way of allowing guardians, parents, and other family members to gift funds to a disabled individual. However, because ABLE accounts contain a payback provision to the state for medical expenses incurred by the beneficiary, existing trusts may still be necessary depending on individual circumstances.
Earnings and Distributions Excluded from Income: The ABLE Act is, in part, modeled after 529 educational savings accounts. The two primary benefits of 529 educational savings accounts is that funds placed in the account grow tax-free and distributions, when made for qualifying educational expenses, are federal and state income tax-free. The exclusion for earnings and distributions from taxes is the primary incentive for saving in a 529 educational account. ABLE accounts, although providing similar preferential tax treatment, do not provide similar results. As noted above, qualifying expenses under the ABLE Act include expenses related to housing, health, transportation, education, and personal support services. These types of expenses are immediate and ongoing. Unlike a 529 educational account which can allow contributions to grow until the beneficiary is ready to enter college, funds in an ABLE account are needed immediately and are unlikely to remain in the account long enough to generate the same level of growth.
Analysis Prepared by: Carlos Anguiano / REV. & TAX. / (916) 319-2098 FN: 0002147
SB 324
Page 9
SENATE THIRD READING
SB 324
(Pavley)
As Amended August 17, 2015
Majority vote
SENATE VOTE: 40-0
Committee |
Votes |
Ayes |
Noes |
Revenue & Taxation |
9-0 |
Ting, Brough, Dababneh, Gipson, Roger Hernández, Mullin, Patterson, Quirk, Wagner |
|
Appropriations |
17-0 |
Gomez, Bigelow, Bloom, Bonta, Calderon, Chang, Nazarian, Eggman, Gallagher, Eduardo Garcia, Holden, Jones, Quirk, Rendon, Wagner, Weber, Wood |
|
SUMMARY: Establishes a California Achieving a Better Life Experience (ABLE) program, and generally conforms income tax law to the federal income tax treatment of ABLE accounts. Specifically, this bill:
Conforms, with specified modifications, the Personal Income Tax (PIT) Law and the Corporations Tax (CT) Law to the Internal Revenue Code (IRC) Section 529A, relating to qualified ABLE programs.
Provides that a copy of the report required to be filed with the Secretary of the Treasury (Secretary) under IRC Section 529A shall be filed, at the same time and in the same manner, with the Franchise Tax Board (FTB).
Creates an instrumentality of the State of California to be known as the California ABLE Program Trust. The purposes, powers, and duties of the California ABLE Program Trust are vested in, and shall be exercised by, the California ABLE Act Board.
Creates the California ABLE Act Board (board) that consists of the Treasurer, the Director of Finance, the State Controller, the Director of Development Services, the Chairperson of the State Council of Developmental Disabilities, the Director of Rehabilitation, and the Chair of the State Independent Living Council, or their designees. The Treasurer shall serve as chair of the board.
Provides that the board shall have the power and authority to do all of the following:
Sue and be sued;
Make and enter into contracts necessary for the administration of the ABLE program trust, and engage personnel, including consultant, actuaries, managers, counsel, and auditors, as necessary for the purpose of rendering professional, managerial, and technical assistance and advice;
Adopt a corporate seal and change and amend it from time to time;
Cause moneys in the program fund to be held and invested and reinvested;
Accept any grants, gifts, appropriations, and other moneys from any unit of federal, state, or local government or any other person, firm, partnership, or corporation for deposit to the administrative fund or the program fund. The board may not accept any contribution by any nonpublic entity, person, firm, partnership, or corporation that is not designated for a specified designated beneficiary;
Enter into agreements with designated beneficiaries or eligible individuals to establish and maintain an ABLE account;
Make provisions for the payment of costs of administration and operation of the ABLE program trust;
Carry out the duties and obligations of the ABLE program trust pursuant to this chapter and the federal ABLE Act pursuant to IRC Section 529A and federal regulations issued pursuant to that code, and have any other powers as may be reasonably necessary for the effectuation of the purposes, objectives, and provisions of this chapter;
Carry out studies and projections in order to advise designated beneficiaries or eligible individuals regarding present and estimated future qualified disability expenses and the levels of financial participation in the ABLE program trust required in order to assist designated beneficiaries or eligible individuals;
Participate in any other way in any federal, state, or local governmental program for the benefit of the ABLE program trust;
Promulgate, impose, and collect administrative fees and charges in connection with transactions of the ABLE program trust, and provide for reasonable service charges, including penalties for cancellations;
Set minimum and maximum investment levels;
Administer the funds of the ABLE program trust;
Procure insurance against any loss in connection with the property, assets, or activities of the ABLE program trust; and,
Procure insurance indemnifying any member of the board from personal loss or liability resulting from a member’s action or inaction as a member of the board.
Requires the Treasurer to appoint an executive director, who shall not be a member of the board and who shall serve at the pleasure of the board.
Requires the Treasurer to determine the duties of the executive director and other staff as necessary and set his or her compensation.
Allows the board to authorize the executive director to enter into contracts on behalf of the board or conduct any business necessary for the efficient operation of the board
Requires the board to segregate moneys received by the ABLE program trust into two accounts, which shall be identified as the program fund and the administrative fund.
Provides that notwithstanding Government Code Section 13340, the program fund and the administrative fund shall be continuously appropriated to the ABLE Act Board for the purposes of the ABLE Act and for the administration of the ABLE Act. The administrative costs shall not exceed 3% of the incoming funds for each fiscal year for the first five fiscal years following the opening of the first ABLE Act account. After the five-year period, administrative costs shall not exceed 1% of the incoming funds for each fiscal year.
Provides that funding for startup and administrative costs for the board shall be provided in the form of a loan from the General Fund sufficient to cover the board's projected administrative costs for its first two years of implementing the program. Once the loan has been expended and revenues from the program are sufficient to cover the board’s ongoing costs, the board shall repay, within five years, the amount loaned, plus interest calculated at the rate earned by the Pooled Money Investment Account.
Requires, no later than 30 days after the close of each month, the investment manager to make available a report with respect to investment performance. The investment manager shall report the following information to the board within 30 days following the end of each month:
The type of investment, name of the issuer, date of maturity, and the par and dollar amount invested in each security, investment, and money within the program fund;
The weighted average maturity of the investments within the program fund;
Any amounts in the program fund that are under the management of an investment manager;
The market value as of the date of the report and the source of this valuation for any security within the program fund; and,
A description of the compliance with the statement of investment policy;
Provides that moneys in the program fund may be invested or reinvested by the Treasurer or may be invested in whole or in part under contract with an investment manager, as determined by the board.
Requires the board to annually prepare and adopt a written statement of investment policy, which shall be considered at a public hearing.
Allows transfer to be made from the program fund to the administrative fund for the purpose of paying operating costs associated with administering the ABLE program trust.
Requires all moneys paid by designated beneficiaries or eligible individuals to be deposited as received into the program fund, and shall be promptly invested and accounted for separately.
Requires the board to maintain separate accounting for each designated beneficiary.
Requires the assets of the trust to be preserved, invested, and expended solely and only for the purposes of the trust and shall be held in trust for the designated beneficiaries and no property rights shall exist in favor of California. The assets shall not be transferred or used by the state for any purposes other than the purposes of the trust and consistent with the provisions of the federal ABLE Act.
Allows a person to make contributions for a taxable year, for the benefit of an eligible individual for that taxable year, to an ABLE account that is established for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account, if all of the following are met:
The designated beneficiary is limited to one ABLE account; and,
The ABLE account is established only for a designated beneficiary who is a resident of California.
Prevents a contribution made to an ABLE account from being accepted unless the following conditions are satisfied:
The contribution is in cash; and,
Except in the case of contributions under IRC Section 529A(c)(1)(C), if the contribution to an ABLE account would result in aggregate contributions from all contributors to the ABLE account for the taxable year exceeding the amount in effect under IRC Section 2503(b) for the calendar year in which the taxable year begins.
Provides that the designated beneficiary shall retain ownership of all contributions made to the designated beneficiary’s ABLE account to the date of utilization for qualified disability expenses, and all interest derived from the investment of the contributions to the designated beneficiary’s ABLE account shall be deemed to be held in the ABLE program trust for the benefit of the designated beneficiary. Contributions may not be pledged as collateral for any loan.
Requires the board to develop adequate safeguards to prevent aggregate contributions on behalf of a designated beneficiary in excess of the maximum contribution limits necessary to provide for the qualified disability expenses of the designated beneficiary.
Provides that, notwithstanding any other law, moneys in, contributions to, and any distribution for qualified disability expenses from, an ABLE account, not to exceed $100,000, shall not count towards determining eligibility for a state or local means-tested program.
Requires the board to provide an annual listing of distributions to individuals with respect to an interest in an ABLE account to the FTB at a time and in a manner and form as specified by the FTB.
Requires the board to make a report to the appropriate individual of any distribution to any individual with respect to an interest in an ABLE account, at a time and in a form and manner as required by the FTB.
Requires the board to report the following to each designated beneficiary on an annual basis:
The value of the designated beneficiary’s account;
earned interest;
The rate of return of the investments in the designated beneficiary’s account for that reporting period; and,
Information on investments and qualified disability expenses that designated beneficiaries can use to set savings goals and contribution amounts.
Requires the board to provide a means for designated beneficiaries to express concerns or comments regarding the ABLE program trust and any information required to be reported by this section.
Requires the board to adopt regulations as it deems necessary to implement this chapter consistent with the federal IRC and regulations issued to ensure that the program meets all criteria for federal tax-exempt benefits.
Provides that the board may adopt regulations to implement this chapter as emergency regulations in accordance with the rulemaking provisions of the Administrative Procedure Act.
Requires the board to market the ABLE program to residents of California to the extent funds are available.
Defines an "ABLE account" or an "account" as an account established and owned by a designated beneficiary for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account.
Defines "administrative fund" as a fund used to administer the ABLE program.
Defines "board" as the California ABLE Act Board.
Defines the "California ABLE Program Trust" or "ABLE Program trust" as the trust created pursuant to the ABLE program.
Defines an "eligible individual" as an individual who is eligible under a qualified ABLE program for a taxable year if during that taxable year both of the following are met:
The individual is entitled to benefits based on blindness or disability under Title II or XVI of the federal Social Security Act, and that blindness or disability occurred before the date on which the individual attained the age of 26; and,
A disability certification, as defined in the federal ABLE Act, is filed pursuant to the requirements set forth in the federal ABLE Act.
Defines a "designated beneficiary" as the eligible individual who established an ABLE account and is the owner of the account.
Defines the "federal ABLE Act" as the federal Stephen Beck Jr., Achieving a Better Life Experience Act of 2014.
Defines "investment management" as the functions performed by a manager contracted to perform functions delegated by the board.
Defines "investment manager" as a manager contracted to perform functions delegated by the board.
Defines "program fund" as a separate fund held within the California ABLE Program Trust.
Defines a "qualified ABLE program" or a "program" as a program established to implement the federal ABLE act pursuant to IRC Section 529A.
Defines "qualified disability expenses" as any expenses related to the eligible individual’s blindness or disability that are made for the benefit of an eligible individual who is the designated beneficiary. These expenses 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, expenses for oversight and monitoring, funeral and burial expenses, and other expenses, which are approved by the Secretary of the Treasury under regulations and consistent with the purposes of the federal ABLE Act.
FISCAL EFFECT: According to the Assembly Appropriations Committee:
1) One-time costs likely in excess of $500,000 to the Treasurer to establish the ABLE Act program; annual administrative costs in the range of $300,000 to $400,000 to the Treasurer thereafter to administer the program. Initial funds will be provided by way of General Fund (GF) loan, potentially as high as $1.5 million, which will be repaid within five years. Thereafter, the program will be funded through administrative fees.
2) Potentially significant administrative costs to the FTB.
3) Estimated GF revenue decreases of $100,000, $400,000, and $900,000 in Fiscal Year (FY) 2015-16, FY 2016-17, and FY 2017-18, respectively; additional decreases thereafter.
4) Substantial increase in MediCal costs as a result of exempting ABLE assets, thus expanding the population of eligible recipients. Each new MediCal participant results in annual costs of approximately $40,000, half of which is paid for with state funds and half federal.
The FTB estimates general fund revenue loss of $100,000 in FY 2015-16, $400,000 in FY 2016-17, and $900,000 in FY 2017-18.
COMMENTS:
Author's Statement: The author has provided the following statement in support of this bill:
In the United States, there are multiple financial tools for individuals to be able to save for future expenses (e.g. college savings accounts, health savings accounts, and individual retirement accounts).
However, millions of individuals with disabilities and their families are unable to use these accounts. Currently, individuals with disabilities may only have less than $2,000 in assets in order to have access to critical support programs such as SSI, SNAP, or Medicaid.
Thus, in order to be able to access these programs, individuals with disabilities must remain poor, and cannot plan and save for large future expenses.
In December 2014, President Obama signed the Achieving a Better Life Experience (ABLE) Act into law. The California Legislature had previously urged Congress to pass federal legislation establishing these savings accounts in 2010 [SJR 31 (Pavley), Chapter 54, Statutes of 2010] and 2012 [SJR 18 (Pavley), Chapter 62, Statutes of 2012).
The federal ABLE Act creates tax-free savings accounts for individuals with disabilities and their families. These accounts will be able to fund a variety of needed expenses such as medical and dental care, housing, and education. The act also authorized each state to create ABLE programs to provide these savings accounts.
SB 324 will allow people with disabilities to achieve a better life experience in California by establishing an ABLE program within the State Treasurer's office.
What Does the ABLE Act Do? The ABLE Act allows individual states to establish ABLE programs, under which a blind or disabled person may establish a tax-favored savings account that may accept contributions and make distributions for the individual to pay certain qualifying disability expenses. Assets in an ABLE account, up to a $100,000, are not taken into account when determining eligibility for federal welfare benefit programs. Furthermore, the structure and tax treatment of the account generally follows the same rules as a 529 educational savings account. In this regard, after-tax contributions are placed in the account, amounts earned in the account are tax-deferred, and distributions are not included in income so long as they are used for qualifying disability expenses.
Substantial Benefits: The new ABLE program provides disabled individuals and their families with two primary benefits. First, the program dramatically expands eligibility for federal and state welfare programs by eliminating asset tests for many of the means-tested welfare programs. By excluding up to $100,000 in an ABLE account from means-tested federal programs, disabled individuals who may not have qualified for Supplemental Security Income (SSI) or Medicaid in the past can now receive benefits. Second, the program provides an alternative, but not necessarily a replacement, to more expensive and more complicated special needs trusts currently being used to shield assets.
ABLE Accounts are Excluded from Federal and State Means Testing: One of the largest benefits afforded by the ABLE Act is the ability to exclude certain assets from federal means-tested programs. As an example, in order for an individual to obtain SSI, the countable resources must be worth not more than $2,000 for an individual or $3,000 for a couple. In essence, the ABLE Act has increased countable assets from $2,000 to $100,000 for disabled individuals seeking eligibility for SSI.
Alternative to Special Needs Trusts: If the goal was to merely increase the cap on assets that disabled individuals can hold to qualify for various federal means-tested programs, it would have been easier for the federal government to simply increase asset limitations instead of creating 529 accounts that exclude assets from means-tested programs. It appears that the ABLE act may have also attempted to address the more legally technical and potentially expensive use of Special/Supplemental Needs Trust. A special needs trust is a specific type of trust that can be created by a parent or guardian to benefit a person with a disability. The goal of a special needs trust is to allow a person with a disability to benefit from funds placed in the trust while, at the same time, receiving public benefit. Depending on how the trust is created, different restrictions apply.
There are primarily two types of special needs trusts: first-party trusts and third-party trusts. A first-party trust is a trust that is funded with assets owned by the beneficiary. Most first-party trusts that hold the beneficiary's assets are considered countable resources for federal means-tested programs. However, the Medicaid program provides for the creation of certain first-party trust that can be funded with the beneficiary's own assets, which will not be counted towards Medicaid's asset test. These types of trusts are "D-4A Special Needs Trusts", named after the federal code section. These accounts require that some or all of the income remaining be paid to the state equal to the total medical assistance paid to the beneficiary.
The second category of special needs trust is a third-party trust, which is a trust that is funded by assets of a person other than the beneficiary. These trusts, if properly drafted, are generally not countable as an asset available to the beneficiary for SSI or Medicaid purposes. Appropriate operative language must be used so that the assets are not counted for Medicaid purposes. Additionally, unlike first-party trusts, the government is not entitled to recover expenses of SSI or Medicaid paid to the beneficiary.
The ABLE Act specifically provides that in the event the beneficiary dies, all amounts remaining in the ABLE account not in excess of the amount equal to the medical assistance paid to the beneficiary shall be distributed to the state. Additionally, a contribution to an ABLE account is treated as a completed gift to the beneficiary of the account. Unlike first-party trusts, ABLE accounts do not require specialized attorneys to ensure that the beneficiary remains eligible for federal benefits. It appears, therefore, that the ABLE Act provides a less complicated and less expensive way of allowing guardians, parents, and other family members to gift funds to a disabled individual. However, because ABLE accounts contain a payback provision to the state for medical expenses incurred by the beneficiary, existing trusts may still be necessary depending on individual circumstances.
Earnings and Distributions Excluded from Income: The ABLE Act is, in part, modeled after 529 educational savings accounts. The two primary benefits of 529 educational savings accounts is that funds placed in the account grow tax-free and distributions, when made for qualifying educational expenses, are federal and state income tax-free. The exclusion for earnings and distributions from taxes is the primary incentive for saving in a 529 educational account. ABLE accounts, although providing similar preferential tax treatment, do not provide similar results. As noted above, qualifying expenses under the ABLE Act include expenses related to housing, health, transportation, education, and personal support services. These types of expenses are immediate and ongoing. Unlike a 529 educational account which can allow contributions to grow until the beneficiary is ready to enter college, funds in an ABLE account are needed immediately and are unlikely to remain in the account long enough to generate the same level of growth.
10% Tax for Distributions Included in Income: As noted in the FTB analysis, "[t]his bill would provide that the portion of any distribution that is includible in state income would be subject to an additional 10-percent tax for state purposes (in addition to the 10-percent additional tax imposed for federal purposes), unless the distribution is made after the death of the beneficiary." California generally imposes a lower tax rate than that of the Federal Government; for example, California generally modifies the 10% tax on nonqualified pension distributions to be a 2.5% additional tax for state purposes. In order to be consistent with other provisions of existing law, the author may wish to reduce the tax imposed in this bill for distributions that are included in income to 2.5%.
Analysis Prepared by: Carlos Anguiano / REV. & TAX. / (916) 319-2098 FN: 0001670
Date of Hearing: August 26, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
SB 324
(Pavley) – As Amended August 17, 2015
Policy Committee: |
Revenue and Taxation |
Vote: |
9 - 0 |
Urgency: No State Mandated Local Program: No Reimbursable: No
SUMMARY:
This bill establishes a state Achieving a Better Life Experience (ABLE) program, and generally conforms the personal income tax and corporation tax laws to the federal tax treatment of ABLE accounts. The ABLE program allows people to make contributions to an ABLE account for the purpose of paying certain disability expenses on behalf of eligible persons, based on blindness or disability under the federal Social Security Act, and provides that money in an ABLE account does not count towards determining eligibility for state and local means-tested programs, such as MediCal.
The bill requires the Treasurer to administer the ABLE program, ensuring compliance with federal ABLE Act requirements, creates two ABLE Act funds for the program and administration, and establishes an ABLE Act Board for program implementation and administration. The bill authorizes the Board to assess administrative fees of up to 3% of incoming funds for the first 5 years of the program, and 1% of incoming funds thereafter. The bill further specifies funding for startup and first-year administrative costs will be loaned from the General Fund and repaid within 5 years with interest at the rate earned by the Pooled Money Investment Account.
FISCAL EFFECT:
1) One-time costs likely in excess of $500,000 to the Treasurer to establish the ABLE Act program; annual administrative costs in the range of $300,000 to $400,000 to the Treasurer thereafter to administer the program. Initial funds will be provided by way of GF loan, potentially as high as $1.5 million, which will be repaid within 5 years. Thereafter, the program will be funded through administrative fees.
2) Potentially significant administrative costs to the Franchise Tax Board.
3) Estimated GF revenue decreases of $100,000, $400,000, and $900,000 in FY 2015-16, FY 2016-17, and FY 2017-18, respectively; additional decreases thereafter.
4) Substantial increase in MediCal costs as a result of exempting ABLE assets, thus expanding the population of eligible recipients. Each new MediCal participant results in annual costs of approximately $40,000, half of which is paid for with state funds and half federal.
COMMENTS:
1) Purpose. According to the author, state and federal law provide many tax-advantaged financial tools that allow individuals to save for future expenses, including college savings accounts, health savings accounts, and individual retirement accounts, but no such savings tool is available for individuals with disabilities. At present, only those disabled individuals with less than $2,000 in assets can access state and federal benefits. As a result, disabled individuals on public benefits are discouraged from working and saving, as they cannot remain eligible if they save more than the means test allows.
2) ABLE Accounts. The federal ABLE Act is designed to recognize the significant costs of living with a disability, including raising children with disabilities and caring for adults with disabilities. Eligible individuals and families can establish and fund ABLE savings accounts with up to $100,000 without jeopardizing their eligibility for public benefits. The ABLE accounts are administered like federal 529 college savings accounts, and funds saved can be used only for disability-related expenses. If the account value exceeds $100,000, federal benefits are suspended.
This bill provides access to federally-recognized ABLE accounts to eligible individuals with disabilities and provides similar shielding from state benefit eligibility tests. The program is administered by the Treasurer, who also administers 529 college savings accounts.
3) A Big Help. The new federal ABLE program provides disabled individuals and their families with a few key benefits. The program effectively eliminates the asset tests for many of means-tested federal benefits, excluding up to $100,000 from the qualification standard. The ABLE program also provides a useful alternative to more expensive and complicated special needs trusts, the only previous structure that could shield assets from the federal means test.
Similar to 529 accounts, interest and income earned on funds in ABLE accounts, as well as distributions for qualifying disability expenses, are not taxed. Unlike 529 accounts, however, ABLE accounts are likely to be used to cover immediate expenses such as health care and housing. Most funds deposited in 529 accounts remain for years, earning significant tax-free income that will be used to pay for college. Tax-free growth in ABLE accounts will not provide a similar benefit unless the funds can be saved for long periods of time.
4) Conforming to AB 449. The author has expressed a desire to conform this bill to AB 449 (Irwin), which is currently on the Suspense File of the Senate Committee on Appropriations.
Analysis Prepared by: Joel Tashjian / APPR. / (916) 319-2081
SB 324
Page 8
Date of Hearing: July 13, 2015
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Philip Ting, Chair
SB 324
(Pavley) – As Amended April 15, 2015
Majority vote. Fiscal committee.
SENATE VOTE: 40-0
SUBJECT: Income taxation: savings plans: Qualified ABLE Program
SUMMARY: Establishes a California Achieving a Better Life Experience (ABLE) program, and generally conforms income tax law to the federal income tax treatment of ABLE accounts. Specifically, this bill:
Conforms, with specified modifications, the Personal Income Tax (PIT) Law and the Corporations Tax (CT) Law to the Internal Revenue Code (IRC) Section 529A, relating to qualified ABLE programs.
Provides that a copy of the report required to be filed with the Secretary of the Treasury (Secretary) under IRC Section 529A shall be filed, at the same time and in the same manner, with the Franchise Tax Board (FTB).
Establishes a qualified ABLE program and the qualified ABLE fund for purposes of implementing the federal ABLE Act pursuant to IRC Section 529A.
Provides that the State Treasurer shall administer the ABLE program and shall be responsible for ensuring that the program is in compliance with the requirements of the federal ABLE Act.
Allows a person to make contributions for a taxable year, for the benefit of an eligible individual for that taxable year, to an ABLE account that is established for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account, if all of the following are met:
The designated beneficiary is limited to one ABLE account; and,
The ABLE account is established only for a designated beneficiary who is a resident of California.
Provides that, notwithstanding any other law, moneys in an ABLE account, not to exceed $100,000, shall not count towards determining eligibility for the Medi-Cal program.
Defines an "ABLE account" or an "account" as an account to which an eligible individual makes contributions for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account.
Defines an “ABLE Fund” or a “fund” as a fund established for purposes of implementing the federal ABLE act.
Defines an “eligible individual” as an individual who is eligible under a qualified ABLE program for a taxable year if during that taxable year both of the following are met:
The individual is entitled to benefits based on blindness or disability under Title II or XVI of the federal Social Security Act, and that blindness or disability occurred before the date on which the individual attained the age of 26; and,
A disability certification, as defined in the federal ABLE Act, is filed pursuant to the requirements set forth in the federal ABLE Act.
Defines a "designated beneficiary” as the eligible individual who established an ABLE account and is the owner of the account.
Defines the "federal ABLE act" as the federal Stephen Beck Jr., Achieving a Better Life Experience Act of 2014.
Defines a "qualified ABLE program” or a “program” as a program established to implement the federal ABLE act pursuant to IRC Section 529A.
Defines “qualified disability expenses” as any expenses related to the eligible individual’s blindness or disability that are made for the benefit of an eligible individual who is the designated beneficiary. These expenses 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, expenses for oversight and monitoring, funeral and burial expenses, and other expenses, which are approved by the Secretary of the Treasury under regulations and consistent with the purposes of the federal ABLE Act.
Provides that the Treasurer may adopt regulations to implement this program.
EXISTING FEDERAL LAW:
Provides tax-exempt status to qualified tuition programs (QTP). Qualified tuition programs are programs established and maintained by a state (or by an eligible education institution) under which a person may purchase tuition credit or make cash contributions to meet the qualified higher education expenses of a designated beneficiary. Contributions to a QTP cannot exceed the amount necessary to provide for the beneficiary's qualified higher education expenses. Distributions to a beneficiary are excluded from income. However, contributions made to a QTP are not deductible.
Provides a qualified ABLE program under the ABLE Act of 2014 for taxable years beginning on or after January 1, 2015. A qualified ABLE program is a program established and maintained by a state, or agency or instrumentality of the state. A qualified ABLE program is generally exempt from income tax, but is otherwise subject to the taxes imposed on the unrelated business income of tax-exempt organizations. A qualified ABLE program must meet the following conditions:
Under the provisions of the program, contributions may be made to an ABLE account, established for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account;
The program must limit a designated beneficiary to one ABLE account;
The program must allow for the establishment of ABLE accounts only for a designated beneficiary who is either a resident of the state maintaining such ABLE program or a resident of a state that has not established an ABLE program which has entered into a contract with such state to provide the contracting state’s residents with access to the state’s ABLE program; and,
The program must meet other specified requirements.
Provides that contributions to an ABLE account must be made in cash and are not deductible for federal income tax purposes. Except in the case of a rollover contribution from another account, an ABLE account must provide that it may not receive aggregate contributions during a taxable year in excess of the annual gift tax exclusion amount. For 2015, the annual gift tax exclusion amount is $14,000. Additionally, a qualified ABLE program must provide adequate safeguards to ensure that ABLE account contributions do not exceed the limit imposed on accounts under the qualified tuition program of the state maintaining the qualified ABLE program. Amounts in the account accumulate on a tax-deferred basis (i.e., income on accounts in the plan is not subject to current income tax).
Provides that distributions from an ABLE account are excludable from income to the extent that the total distribution does not exceed the qualified disability expenses of the beneficiary during the taxable year. If a distribution from an ABLE account exceeds the qualified disability expenses of the beneficiary, a pro-rata portion of the distribution is excludable from income. The portion of any distribution that is includible in income is subject to an additional 10 percent tax unless the distribution is made after the death of the beneficiary. Amounts in an ABLE account may be rolled over without income tax liability to another ABLE account for the same beneficiary or another ABLE account for the designated beneficiary’s brother, sister, stepbrother or stepsister who is also an eligible individual.
Provides that a contribution to an ABLE account is treated as a completed gift of a present interest to the beneficiary of the account. Such contributions qualify for the per-donee annual gift tax exclusion ($14,000 for 2015) and, to the extent of such exclusion, are exempt from the generation-skipping transfer (GST) tax. A distribution from an ABLE account generally is not subject to gift tax or GST tax.
Defines an "eligible individual" as either:
An individual for whom a disability certification has been filed with the Secretary for the taxable year; or,
An individual who has been determined, for purposes of Social Security Disability Insurance benefits or Supplemental Security Income (SSI) benefits to meet the requirements relating to disability or blindness under the SSI program. In general, an individual must be either blind or disabled, and the blindness or disability must have occurred before the date on which the individual attained age 26.
Provides that earning on distributions from an ABLE account are only untaxed to the extent total distributions do not exceed the qualified disability expenses of the designated beneficiary. For these purposes, qualified disability expenses are any expenses related to the eligible individual’s blindness or disability which are made for the benefit of the designated beneficiary. Such expenses include the following: 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 expenses, which are approved by the Secretary under regulations and consistent with the purposes of this provision.
Provides that each officer or employee having control of the qualified ABLE program (or their designees) is required to make reports to the Secretary and to the designated beneficiaries of ABLE accounts. Such reports must provide information with respect to contributions, distributions, the return of excess contributions, and other matters as required by the Secretary. In addition, for research purposes, such officers and employees shall make available to the public and provide to the Secretary, reports containing aggregate information, by diagnosis and other relevant characteristics, on contributions and distributions.
Provides, notwithstanding any other provision of federal law that requires the consideration of one or more financial circumstances of an individual, for the purpose of determining eligibility to receive, or the amount of, any assistance or benefit authorized by such provision to be provided to or for the benefit of such individual, any amount (including earnings) in an ABLE account of the individual, any contributions to an ABLE account of the individual, and any distribution for qualified disability expenses are required to be disregarded for purposes of determining such eligibility during any period in which the individual maintains, makes contributions to, or receives distributions from an ABLE account, except that in the case of the SSI program—a distribution for housing expenses is not disregarded, and any amount in an ABLE account in excess of $100,000 is considered a resource for the designated beneficiary.
EXISTING STATE LAW:
Conforms to IRC Section 529 as of the "specified date" of January 1, 2009, with certain state modifications, including a modification to the 10% tax on excess distributions to instead be an additional tax of 2.5% for state purposes.
Provides its own IRC Section 529 Qualified Tuition Program, known as the "Golden State Scholarshare Trust" (ScholarShare). ScholarShare enables taxpayers to save for college by putting money in tax-advantaged investments. After-tax contributions allow earnings to grow tax-deferred and disbursements, when used for tuition and other qualified expenses, are federal and state tax-free. Distributions in excess of qualified higher education expenses incurred for the beneficiary, the portion of the excess that is treated as earnings generally is subject to income tax and an additional 2.5% tax for state purposes.
Limits the total amount of contributions to a beneficiary to $371,000. Accounts that have reached the limit may continue to accrue earnings.
FISCAL EFFECT: The FTB estimates general fund revenue loss of $100,000 in fiscal year (FY) 2015-16, $400,000 in FY 2016-17, and $900,000 in FY 2017-18.
COMMENTS:
Author's Statement: The author has provided the following statement in support of this bill:
In the United States, there are multiple financial tools for individuals to be able to save for future expenses (e.g. college savings accounts, health savings accounts, and individual retirement accounts).
However, millions of individuals with disabilities and their families are unable to use these accounts. Currently, individuals with disabilities may only have less than $2,000 in assets in order to have access to critical support programs such as SSI, SNAP, or Medicaid.
Thus, in order to be able to access these programs, individuals with disabilities must remain poor, and cannot plan and save for large future expenses.
In December 2014, President Obama signed the Achieving a Better Life Experience (ABLE) Act into law. The California Legislature had previously urged Congress to pass federal legislation establishing these savings accounts in 2010 (SJR 31, Pavley) and 2012 (SJR 18, Pavley).
The federal ABLE Act creates tax-free savings accounts for individuals with disabilities and their families. These accounts will be able to fund a variety of needed expenses such as medical and dental care, housing, and education. The act also authorized each state to create ABLE programs to provide these savings accounts.
SB 324 will allow people with disabilities to achieve a better life experience in California by establishing an ABLE program within the State Treasurer’s office.
Arguments in Support: According to the California Association for Health Services at Home (CAHSAH), “Congress passed the ABLE Act to provide a tax-free savings account for qualified persons with disabilities, similar to a Health Savings Account and 529 College Plans. The ABLE Act aims to ease financial constraints faced by persons with disabilities by making tax-free savings accounts available to cover qualified expenses. The Act will also allow for supplemental benefits in addition to what is provided through private insurance, Medi-Cal, or SSI.”
What does the ABLE Act do? The ABLE Act allows individual states to establish ABLE programs, under which a blind or disabled person may establish a tax-favored savings account that may accept contributions and make distributions for the individual to pay certain qualifying disability expenses. Assets in an ABLE account, up to a $100,000, are not taken into account when determining eligibility for federal welfare benefit programs. Furthermore, the structure and tax treatment of the account generally follows the same rules as a 529 educational savings account. In this regard, after-tax contributions are placed in the account, amounts earned in the account are tax-deferred, and distributions are not included in income so long as they are used for qualifying disability expenses.
Substantial Benefits: The new ABLE program provides disabled individuals and their families with two primary benefits. First, the program dramatically expands eligibility for federal and state welfare programs by eliminating asset tests for many of the means-tested welfare programs. By excluding up to $100,000 in an ABLE account from means-tested federal programs, disabled individuals who may not have qualified for SSI or Medicaid in the past can now receive benefits. Second, the program provides an alternative, but not necessarily a replacement, to more expensive and more complicated special needs trusts currently being used to shield assets.
ABLE Accounts are Excluded from Federal and State Means Testing: One of the largest benefits afforded by the ABLE Act is the ability to exclude certain assets from federal means-tested programs. As an example, in order for an individual to obtain SSI, the countable resources must be worth not more than $2,000 for an individual or $3,000 for a couple. In essence, the ABLE Act has increased countable assets from $2,000 to $100,000 for disabled individuals seeking eligibility for SSI.
Alternative to Special Needs Trusts: If the goal was to merely increase the cap on assets that disabled individuals can hold to qualify for various federal means-tested programs, it would have been easier for the Federal Government to simply increase asset limitations instead of creating 529 accounts that exclude assets from means-tested programs. It appears that the ABLE act may have also attempted to address the more legally technical and potentially expensive use of Special/Supplemental Needs Trust. A special needs trust is a specific type of trust that can be created by a parent or guardian to benefit a person with a disability. The goal of a special needs trust is to allow a person with a disability to benefit from funds placed in the trust while, at the same time, receiving public benefit. Depending on how the trust is created, different restrictions apply.
There are primarily two types of special needs trusts: first-party trusts and third-party trusts. A first-party trust is a trust that is funded with assets owned by the beneficiary. Most first-party trusts that hold the beneficiary's assets are considered countable resources for federal means-tested programs. However, the Medicaid program provides for the creation of certain first-party trust that can be funded with the beneficiary's own assets, which will not be counted towards Medicaid's asset test. These types of trusts are "D-4A Special Needs Trusts", named after the federal code section. These accounts require that some or all of the income remaining be paid to the state equal to the total medical assistance paid to the beneficiary.
The second category of special needs trust is a third-party trust, which is a trust that is funded by assets of a person other than the beneficiary. These trusts, if properly drafted, are generally not countable as an asset available to the beneficiary for SSI or Medicaid purposes. Appropriate operative language must be used so that the assets are not counted for Medicaid purposes. Additionally, unlike first-party trusts, the government is not entitled to recover expenses of SSI or Medicaid paid to the beneficiary.
The ABLE Act specifically provides that in the event the beneficiary dies, all amounts remaining in the ABLE account not in excess of the amount equal to the medical assistance paid to the beneficiary shall be distributed to the state. Additionally, a contribution to an ABLE account is treated as a completed gift to the beneficiary of the account. Unlike first-party trusts, ABLE accounts do not require specialized attorneys to ensure that the beneficiary remains eligible for federal benefits. It appears, therefore, that the ABLE Act provides a less complicated and less expensive way of allowing guardians, parents, and other family members to gift funds to a disabled individual. However, because ABLE accounts contain a payback provision to the state for medical expenses incurred by the beneficiary, existing trusts may still be necessary depending on individual circumstances.
Earnings and Distributions Excluded from Income: The ABLE Act is, in part, modeled after 529 educational savings accounts. The two primary benefits of 529 educational savings accounts is that funds placed in the account grow tax-free and distributions, when made for qualifying educational expenses, are federal and state income tax-free. The exclusion for earnings and distributions from taxes is the primary incentive for saving in a 529 educational account. ABLE accounts, although providing similar preferential tax treatment, do not provide similar results. As noted above, qualifying expenses under the ABLE Act include expenses related to housing, health, transportation, education, and personal support services. These types of expenses are immediate and ongoing. Unlike a 529 educational account which can allow contributions to grow until the beneficiary is ready to enter college, funds in an ABLE account are needed immediately and are unlikely to remain in the account long enough to generate the same level of growth.
How is a tax expenditure different from a direct expenditure? As the Department of Finance notes in its annual Tax Expenditure Report, there are several key differences between tax expenditures and direct expenditures. First, tax expenditures are reviewed less frequently than direct expenditures once they are put in place. Second, there is generally no control over the amount of revenue losses associated with any given tax expenditure. Finally, once enacted, it takes a two-thirds vote to rescind an existing tax expenditure absent a sunset date. The two-thirds vote requirement can be especially problematic if the Federal Government makes future modifications to the ABLE Act that result in a tax increase. The two-thirds vote requirement may make future conformity much more difficult. For this reason, the author may wish to include a five-year sunset date for the exclusions to provide the opportunity for future legislative review.
10% Tax for Distributions Included in Income: As noted in the FTB analysis, "[t]his bill would provide that the portion of any distribution that is includible in state income would be subject to an additional 10-percent tax for state purposes (in addition to the 10-percent additional tax imposed for federal purposes), unless the distribution is made after the death of the beneficiary." California generally imposes a lower tax rate than that of the Federal Government; for example, California generally modifies the 10% tax on nonqualified pension distributions to be a 2.5% additional tax for state purposes. In order to be consistent with other provisions of existing law, the Committee may wish to reduce the tax imposed in this bill for distributions that are included in income to 2.5%.
Conforming to AB 449 (Irwin): The author has expressed a desire to conform this bill to the recent changes made to AB 449 (currently pending hearing by the Senate Appropriations Committee), which would, in general, create a seven-person board and an administrative funding source to implement the provisions of this bill. Incorporating those changes would add the following provisions to this bill:
Creates an ABLE Act Board that consists of the Treasurer, the Director of Finance, the State Controller, the Director of Development Services, the chairperson of the State Council of Developmental Services, the director of Department of Rehabilitation, or their designees, as well as a designee from the California State Independent Living Council;
Requires that the ABLE Fund accept money from all ABLE accounts;
Requires the ABLE Act Board to segregate moneys received by the ABLE Fund into two accounts, which shall be identified as the program account and the administrative account;
Provides that notwithstanding Government Code Section 13340, the program account and the administrative account shall be continuously appropriated to the ABLE Act Board for the purposes of the ABLE Act and for the administration of the ABLE Act. The administrative costs shall not exceed one percent of the incoming funds for the fiscal year; and,
Provides that an appropriation from the General Fund shall be made in the annual Budget Act to fund startup and first-year costs. The board shall repay, within five years, the amount appropriated, plus interest calculated at the rate earned by the Pooled Money Investment Account.
REGISTERED SUPPORT / OPPOSITION:
Support
Board of Governors of the California Community Colleges
California Association for Health Services at Home
California Foundation for Independent Living Centers
California Taxpayers Association
North Los Angeles County Regional Center
State of California, Treasurer
State Council on Developmental Disabilities
Opposition
None on File
Analysis Prepared by: Carlos Anguiano / REV. & TAX. / (916) 319-2098
SB 324
Page 4
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Office of Senate Floor Analyses (916) 651-1520 Fax: (916) 327-4478 |
THIRD READING
Bill No: SB 324
Amended: 4/15/15
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
SUBJECT: Income taxation: savings plans: Qualified ABLE Program
DIGEST: This bill conforms state law to the recently enacted Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014 (ABLE Act).
Existing law:
Does not automatically conform to changes to federal tax law, except for specific retirement provisions.
Conforms to federal law as of a specified date, currently January 1, 2009.
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.”
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.
Applies income and asset tests for some programs allowing disabled individuals to receive Medi-Cal benefits.
This bill:
Conforms state 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.
Directs the State Treasurer’s Office to implement the program, and issue any regulations necessary.
Defines several terms, including:
“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 (IRS).
“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.
Provides that ABLE account balances below $100,000 don’t count when considering the eligible individual’s Medi-Cal eligibility.
Comments
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. SB 324 implements the ABLE Act in California, and directs the State Treasurer to administer ABLE accounts on behalf of qualified Californians.
While similar, the differences between 529s and ABLE accounts are important. Education accounts have been criticized as tax shelters for wealthy individuals to fund education expenses for their children, with only 10% of account holders having less than $50,000 in annual income, and more than 70% with more than $150,000. While federal law doesn’t set explicit contribution limits for 529s, the federal gift tax can apply, but is generally avoided by establishing multiple accounts for the same beneficiary. In response to these criticisms, President Obama briefly proposed to tax 529 earnings as ordinary income before withdrawing the proposal. ABLE accounts avoid these critiques by limiting contributions to a total of $14,000 per year, and allowing only one account per individual.
FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No
According to the Senate Appropriations Committee:
The Franchise Tax Board (FTB) indicates that this bill will lead to a revenue loss (General Fund) of $100,000 in 2015-16, $400,000 in 2016-17, and $900,000 in 2017-18. Additionally, FTB will incur minor costs to implement its provisions of this bill.
The State Treasurer’s Office, the entity that would administer ABLE accounts on behalf of qualified Californians, would incur annual costs in the hundreds of thousands of dollars minimally. The precise amount would depend on how this bill is implemented.
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: (Verified 5/28/15)
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.”
Prepared by: Colin Grinnell / GOV. & F. / (916) 651-4119
5/30/15 17:35:07
**** END ****
SB 324 (Pavley) Page 2 of 2
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 324 (Pavley) - Income taxation: savings plans: Qualified ABLE Program
|
|
Version: April 15, 2015 |
Policy Vote: GOV. & F. 7 - 0 |
Urgency: No |
Mandate: No |
Hearing Date: April 27, 2015 |
Consultant: Robert Ingenito |
This bill meets the criteria for referral to the Suspense File.
Bill Summary:
SB 324 would (1) establish a California Achieving a Better Life Experience (ABLE) program and (2) modify state income tax law to generally conform to the federal income tax treatment of ABLE accounts.
Fiscal Impact:
The Franchise Tax Board (FTB) indicates that this bill would lead to a revenue loss (General Fund) of $100,000 in 2015-16, $400,000 in 2016-17, and $900,000 in 2017-18. Additional, FTB would incur minor costs to implement its provisions of the bill.
The State Treasurer’s Office (STO), the entity that would administer ABLE accounts on behalf of qualified Californians, would incur annual costs in the hundreds of thousands of dollars minimally. The precise amount would depend on how the bill is implemented.
Background:
The federal ABLE Act of 2014 created a new type of tax-favored savings program beginning in taxable year 2015 for individuals who become blind or disabled before reaching age 26. ABLE accounts generally follow the same rules as education savings accounts allowed by Section 529 of the Internal Revenue Code (529s). Specifically, individuals can make nondeductible cash contributions to an ABLE account in the name of a specified beneficiary, and account’s earnings grow tax free. ABLE account distributions are also not included in the beneficiary’s income so long as they’re used for qualified services, and distributions don’t exceed the cost of the qualified services. The ABLE Act imposes a federal 10 percent tax on distributions that exceed those costs. Congress created ABLE accounts to offer an alternative to Special Needs and Supplement Needs Trusts.
The ABLE Act directed states to establish one ABLE account for each resident beneficiary. SB 324 implements the ABLE Act in California, and directs the State Treasurer to administer ABLE accounts on behalf of qualified Californians.
Proposed Law:
This bill would establish a California ABLE program, and would generally conform to the federal income tax treatment of ABLE accounts; STO would administer the program in compliance with federal law. Neither federal nor state taxes would apply to ABLE account earnings or distributions used for qualified services. The additional federal contribution, rollover, and distribution rules would apply—meaning the portion of any ABLE distribution that is includible in income generally would be subject to a 2.5 percent tax for state purposes (in addition to the 10-percent additional tax imposed for federal purposes).
Related Legislation:
AB 449 (Irwin) is substantially similar to this bill, except that it would provide that ABLE account amounts would be required to be disregarded for purposes of determining eligibility for state and local means-tested programs that provide assistance to disabled individuals. The bill is currently in the Assembly Revenue and Taxation Committee.
Staff Comments:
The FTB revenue estimate for this bill is based on a proration of the Joint Committee on Taxation’s (JCT) estimate for the federal ABLE Act. JCT’s estimated losses, converted to calendar years, for 2016 through 2019 are $5.5 million, $13.5 million, $30.3 million, and $57.3 million.
These estimated losses are attributable to projected earnings in ABLE accounts that are exempt from taxation and distributions that do not exceed qualified expenses that are excluded from gross income. JCT estimated losses are reduced by approximately 88 percent based on Social Security Disability Insurance data to reflect California’s estimated share of the federal exclusion. The results are then reduced an additional 70 percent to reflect the difference between federal and state tax rates.
JCT estimates that revenue losses are projected to continue to increase, and prorating the last year included in the JCT estimate would result in an estimated state loss of approximately $10 million in 2025-26.
SB 324 (Pavley) 2/23/15 Page 3 of 3
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
Bill No: |
SB 324 |
Hearing Date: |
4/8/15 |
Author: |
Pavley |
Tax Levy: |
No |
Version: |
2/23/15 |
Fiscal: |
Yes |
Consultant: |
Grinnell |
||
ACHIEVING A BETTER LIFE EXPERIENCE (ABLE) PROGRAM
Establishes ABLE accounts in California, administered by the State Treasurer.
Background and Existing Law
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, 2009 (SB 401, Wolk, 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 imposes a 10% excise tax on distributions that exceed those costs. Congress created ABLE accounts to offer an alternative to Special Needs and Supplement Needs Trusts.
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 by June 19th, 2015, to implement the program to guide states as they enact legislation creating ABLE accounts. SB 324 implements the ABLE Act in California, and directs the State Treasurer to administer ABLE accounts on behalf of qualified Californians.
Proposed Law
Senate Bill 324 enacts ABLE accounts in California based on the ABLE Act’s definitions, and directs the State Treasurer to administer the program in compliance with federal law. As such, neither federal nor state taxes will apply to ABLE account earnings or distributions used for qualified services. The measure also defines its terms, and allows the Treasurer to issue regulations necessary to implement the measure.
State Revenue Impact
According to the Franchise Tax Board, SB 324 results in revenue losses of $100,000 in 2015-16, $400,000 in 2016-17, and $900,000 in 2017-18.
Comments
1. Purpose of the bill. 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.”
2. Not the same. Congress created ABLE accounts to largely resemble education savings accounts authorized by Section 529 of the Internal Revenue Code, so much so that they did so by creating new Section 529A just for them. However, the differences between the two are important. Education accounts have been criticized as tax shelters for wealthy individuals to fund education expenses for their children, with only 10% of account holders having less than $50,000 in annual income, and more than 70% with more than $150,000. While federal law doesn’t set explicit contribution limits for 529s, the federal gift can apply, but is generally avoided by establishing multiple accounts for the same beneficiary. In response to these criticisms, President Obama briefly proposed to tax 529 earnings as ordinary income before withdrawing the proposal. ABLE accounts avoid these critiques by limiting contributions to a total of $14,000 per year, and allowing only one account per individual.
3. Who and what? SB 324 erects the necessary infrastructure for ABLE accounts in California, intended to help only “qualified individuals” pay for select “qualified services.” These terms’ definitions determine which individuals and services are eligible for SB 324’s tax benefits, so they must be crafted broadly enough to apply to individuals and services the Legislature wants to include, without including anyone who shouldn’t be entitled. While SB 324 relies exclusively on federal definitions from the ABLE Act to ensure conformity between state and federal taxes, what do these terms mean specifically?
“Qualified individual” is an individual who is blind or disabled, with onset before the age of 26. The individual must be entitled to Social Security Disability Insurance benefits, or have a disability certificate on file with the Internal Revenue Service.
“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.
4. Unintended Consequences. When enacting the ABLE Act, Congress deemed that contributions, earning, and distributions from ABLE accounts below $100k don’t count towards means-tested welfare assistance programs for disabled individuals. While California’s regional center disabled services aren’t based on income, Medi-Cal does use means testing. To ensure that individuals who normally qualify for Medi-Cal aren’t accidentally disenrolled because ABLE account balances push them above asset or income limits, the Committee may wish to consider amending SB 324 to provide that ABLE account amounts under $100,000 do not affect the individual’s Medi-Cal eligibility.
5. Rubber and road. SB 324 selects the State Treasurer’s Office to create ABLE accounts for designated beneficiaries, similar to its 529 program, called “ScholarShare.” ScholarShare is governed by a legislatively-enacted investment board comprised of the State Treasurer, the Director of Finance, the executive director of the State Board of Education, plus Governor, Senate, and Assembly appointees (AB 530, Committee on Higher Education, 1997). AB 530 enacted several sections in the Education Code enacting a board, granting it powers, specifying the contents of trust agreements, and generally guiding the Treasurer’s implementation of ScholarShare. While the scope of the ABLE Act will likely be significantly smaller, further statutory direction to the Treasurer regarding SB 324’s implementation may be helpful.
6. Deduct this? ABLE accounts generate tax-free earnings. Distributions used to pay for qualified services are also not taxable; however, individuals donating to the accounts can’t deduct contributions from income for federal or state taxes. While the state could allow for such a deduction, doing so would result in a revenue loss to the state, and a lack of conformity with federal law. Additionally, previous bills that enact a deduction for 529 contributions haven’t reached the Governor’s Desk (SB 643 (Florez, 2007); AB 675 (Gilmore, 2008); and AB 819 (Runner, 2009).
7. Technicals. The ABLE Act imposes a 10% tax on distributions that exceed the beneficiary’s qualified expenses; however, the state generally applies penalties for state purposes equal to one-quarter of federal ones because federal tax liabilities are generally four times state ones. The Committee may wish to consider amending SB 324 to reduce this excise tax from 10% to 2.5%, in addition to fixing erroneous cross references.
Support and Opposition
(4/2/15)
Support: Association of Regional Center Agencies, Autism Speaks, California Association for Health Services at Home, Center for Autism and Related Disorders, National Down Syndrome Society, The Arc and United Cerebral Palsy California Collaboration; United Cerebral Palsy.
Opposition: Unknown.
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Discussed in Hearing
56SEC
Senate Floor
54SEC
Assembly Floor
36SEC
Assembly Floor
1MIN
Senate Floor
Bill Author
