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 8  AN ACT establishing the Kansas educational savings plan trust; creating
 9    a board of directors thereof; prescribing certain powers and duties;
10    relating to investment income and payments of benefits.
11
12  Be it enacted by the Legislature of the State of Kansas:
13    Section 1.  This act shall be known and may be cited as the Kansas
14  educational savings plan trust act.
15    Sec. 2.  As used in this act:
16    (a)  ``Beneficiary'' means any person designated by a participation
17  agreement to benefit from payments for higher education costs at an
18  institution of higher education;
19    (b)  ``benefits'' means the payment of higher education costs on behalf
20  of a beneficiary by the trust during the beneficiary's attendance at an
21  institution of higher education;
22    (c)  ``board'' means the board of directors of the Kansas educational
23  savings plan trust;
24    (d)  ``endowment fund'' means the endowment fund established by
25  section 7 of this act which shall be held as a separate fund within the
26  trust;
27    (e)  ``higher education costs'' means the certified costs of tuition,
     fees,
28  books, supplies, transportation, room and board or other appropriate ex-
29  penses, or any of the foregoing, for attendance at an institution of higher
30  education;
31    (f)  ``institution of higher education'' means a two-year or four-year
32  public or regionally accredited private or nonprofit college or university;
33    (g)  ``Kansas educational savings plan trust'' or ``trust'' means the
     trust
34  created by this act;
35    (h)  ``participant'' means an individual, firm, corporation or a legal
     rep-
36  resentative of any of the foregoing who has entered into a participation
37  agreement pursuant to this act for the advance payment of higher edu-
38  cation costs on behalf of a beneficiary;
39    (i)  ``participation agreement'' means an agreement between a partic-
40  ipant and the trust, pursuant to and conforming with the requirements
41  of this act;
42    (j)  ``program administrator'' means the administrator of the trust ap-
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 2  -pointed by the board to administer and manage the trust;
 3    (k)  ``program fund'' means the program fund established by section
 4  7 of this act which shall be held as a separate fund within the trust;
 5    (l)  ``tuition'' means the quarterly or semester charges imposed to at-
 6  tend an institution of higher education and required as a condition of
 7  enrollment;
 8    (m)  ``vested participation agreement'' means a participation agree-
 9  ment which has been in full force and effect during the vestment period
10  without default; and
11    (n)  ``vestment period'' means eight continuous years of residency in
12  the state while participating in the trust.
13    Sec. 3.  There is hereby created a public body corporate and politic
14  to be known as the Kansas educational savings plan trust. The trust shall
15  be an independent political entity and shall have all necessary govern-
16  mental and corporate powers, including the power and authority to:
17    (a)  Sue and be sued;
18    (b)  make and enter into contracts necessary for the administration of
19  the trust pursuant to this act;
20    (c)  adopt a corporate seal and to change and amend it from time to
21  time;
22    (d)  invest moneys within the trust, including the program fund and
23  the endowment fund therein, in any investments determined by the board
24  to be appropriate, notwithstanding any other provisions of law, which are
25  specifically determined to be inapplicable to the trust;
26    (e)  enter into agreements with any institution of higher education,
27  the state or any federal or other state agency or other entity as required
28  for the effectuation of its rights and duties pursuant to this act;
29    (f)  accept any grants, gifts, legislative appropriations and other mon-
30  eys from the state, any unit of federal, state or local government or any
31  other person, firm, partnership or corporation for deposit to the endow-
32  ment fund, which, in the case of any contributions from other than gen-
33  eral funds of the state, may be limited in application to definite classes
34  of beneficiaries;
35    (g)  enter into participation agreements with participants;
36    (h)  make payments to institutions of higher education pursuant to
37  participation agreements on behalf of beneficiaries;
38    (i)  make refunds to participants upon the termination of participation
39  agreements pursuant to the provisions, limitations and restrictions set
40  forth in this act;
41    (j)  appoint a program administrator and determine the duties of the
42  program administrator and other staff as necessary and fix their compen-
43  sation;
44    (k)  make provision for the payment of costs of administration and
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 2  -operation of the trust; and
 3    (l)  carry out the duties and obligations of the trust pursuant to this
 4  act and to have any and all other powers as may be reasonably necessary
 5  for effectuation of the purposes of the trust and this act.
 6    Sec. 4.  (a) The trust shall be governed by a board of directors con-
 7  sisting of seven voting members. The membership of the board shall be
 8  appointed by the governor, subject to confirmation by the senate as pro-
 9  vided in K.S.A. 75-4315b and amendments thereto, as follows:  One mem-
10  ber from the board of trustees of the Kansas public employees retirement
11  system, one member from the board of regents, one member from the
12  associated students of Kansas, one member from the independent college
13  association, one member from the state department of education and two
14  members shall be representative of the general public. Not more than
15  four members of the board may belong to the same political party.
16    (b)  The governor shall appoint the members to initial terms of four
17  years. Each board member shall hold office for the term of such member's
18  appointment and until such member's successor shall have been ap-
19  pointed and qualified. Any vacancy in the board occurring other than by
20  expiration of term shall be filled by the appointment of the governor, but
21  for the unexpired term only.
22    (c)  Following the expiration of the initial terms of the public mem-
23  bers, succeeding public members of the board shall be elected by the
24  participants of the trust holding a valid participation agreement. Members
25  shall be elected for terms of four years each by a majority of those casting
26  ballots.
27    (d)  Members of the board shall serve without compensation but may
28  receive reasonable reimbursement for actual and necessary expenses in-
29  curred in attendance at board meetings and in connection with other trust
30  business.
31    (e)  The board, upon its initial composition and thereafter, shall elect
32  a chairperson, vice-chairperson, secretary, treasurer and other officers as
33  the board deems necessary and appropriate. The board shall select the
34  program administrator, who shall serve at the pleasure of the board and
35  be responsible for the general operation, management and administration
36  of the trust. The program administrator shall serve as a nonvoting mem-
37  ber of the board.
38    (f)  A majority of the members of the board shall constitute a quorum
39  for the transaction of business at any meeting of the board or the exercise
40  of a power or function of the trust notwithstanding the existence of va-
41  cancies on the board. Voting upon action taken by the board shall be
42  conducted by a majority vote of the members present at a meeting of the
43  board. The board shall meet at the call of the chairperson and as may be
44  provided in any bylaws adopted by the board. Meetings of the board may
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 2  -be held at any place within the state.
 3    Sec. 5.  In addition to effectuating and carrying out all of the powers
 4  granted by this act, the board shall have all powers necessary to carry out
 5  and effectuate the purposes, objectives and provisions of this act, includ-
 6  ing, but not limited to, the powers to:
 7    (a)  Invest assets of the trust as provided by this act and engage in-
 8  vestment advisors to assist in the investment of trust assets;
 9    (b)  carry out studies and projections in order to advise participants
10  regarding present and estimated future higher education costs and levels
11  of financial participation in the trust required in order to enable partici-
12  pants to achieve their educational funding objectives;
13    (c)  disburse trust moneys to any institution of higher education in
14  order to provide for payments required by participation agreements for
15  the benefit of beneficiaries;
16    (d)  contract for goods and services and engage personnel as neces-
17  sary, including consultants, actuaries, managers, counsel and auditors for
18  the purpose of rendering professional, managerial and technical assis-
19  tance and advice, all of which contract obligations and services shall be
20  payable out of any moneys of the trust;
21    (e)  solicit and accept for the benefit of the endowment fund gifts,
22  grants and other moneys, including general fund appropriations from the
23  state and grants from any federal or other governmental agency and to
24  participate in any other way in any federal, state or local governmental
25  program;
26    (f)  promulgate, impose and collect administrative fees and charges in
27  connection with transactions of the trust, and provide for reasonable pen-
28  alties, including penalties for delinquent payments in respect of partici-
29  pation agreements;
30    (g)  procure insurance against any loss in connection with the prop-
31  erty, assets or activities of the trust;
32    (h)  administer the funds of the trust;
33    (i)  procure insurance indemnifying any member of the board from
34  personal loss or accountability arising from liability resulting from a mem-
35  ber's action or inaction as a member of the board;
36    (j)  promulgate reasonable rules and regulations for the administration
37  of the trust; and
38    (k)  enter into contracts with institutions of higher education to effec-
39  tuate the purpose of and powers granted by this act.
40    Sec. 6.  The trust shall have the authority to enter into participation
41  agreements with participants on behalf of beneficiaries pursuant to the
42  following terms and agreements:
43    (a)  Each participation agreement shall require a participant to agree
44  to invest a specific amount of money in the trust for a specific period of
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 2  -time for the benefit of a specific beneficiary. Participation agreements
 3  may be amended to provide for adjusted levels of payments based upon
 4  changed circumstances or changes in educational plans and may contain
 5  penalties for failure to make payments when scheduled;
 6    (b)  notwithstanding the provisions of subsection (a), participants may
 7  elect to enter into a lump-sum payment participation agreement in con-
 8  nection with which a single, lump-sum payment is made by the participant
 9  for the benefit of a beneficiary;
10    (c)  the participation agreement shall determine the minimum rate of
11  interest which shall be borne by the investment made by the participant
12  or in lieu thereof shall provide for alternative procedures or contain a
13  specific formula for the calculation of such rate of interest from the date
14  of deposit of moneys by the participant to the scheduled date of maturity
15  of the participation agreement;
16    (d)  beneficiaries designated in participation agreements may be des-
17  ignated from date of birth to age 15;
18    (e)  payment of benefits provided under participation agreements
19  must begin not later than the first full fall academic semester at an insti-
20  tution of higher education following the 18th birthday of the subject ben-
21  eficiary, unless the participant notifies the program administrator to the
22  contrary. Upon the occurrence of either event, the funds attributable to
23  the participation agreement shall earn interest at the minimum rate of
24  return beginning on a date specified by the participation agreement. The
25  annual total payment of benefits is limited to the beneficiary's higher
26  education costs;
27    (f)  the execution of a participation agreement by the trust shall not
28  guarantee in any way that higher education costs will be equal to projec-
29  tions and estimates provided by the trust or that the beneficiary named
30  in any participation agreement will:
31    (1)  Be admitted to an institution of higher education;
32    (2)  if admitted, be determined a resident for tuition purposes by the
33  institution of higher education, unless the participation agreement is
34  vested;
35    (3)  be allowed to continue attendance at the institution of higher
36  education following admission; or
37    (4)  graduate from the institution of higher education;
38    (g)  beneficiaries may be changed as permitted by the rules and reg-
39  ulations of the board upon written request of the participant prior to the
40  date of admission of any beneficiary under a participation agreement by
41  an institution of higher education;
42    (h)  participation agreements shall be freely amended throughout
43  their terms in order to enable participants to increase or decrease the
44  level of participation, change the designation of beneficiaries and carry
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 2  -out similar matters;
 3    (i)  each participation agreement shall provide that for vested partic-
 4  ipation agreements, the beneficiary shall be considered a resident of the
 5  state for tuition purposes if the beneficiary enrolls in an institution of
 6  higher education in this state prior to enrollment in any other educational
 7  institution; and
 8    (j)  each participation agreement shall provide that the participation
 9  agreement may be canceled upon the terms and conditions, and upon
10  payment of the fees and costs set forth and contained in the rules and
11  regulations promulgated by the board.
12    Sec. 7.  (a) The board shall segregate moneys received by the trust
13  into two funds, which shall be identified as the program fund and the
14  endowment fund. All moneys paid by participants in connection with
15  participation agreements shall be deposited as received into the program
16  fund and shall be promptly invested and accounted for separately.  Con-
17  tributions may be withdrawn only for payment of educational expenses.
18  All moneys received by the trust from the proceeds of state appropria-
19  tions, federal and state grants, gifts and other endowments for the pur-
20  poses of the trust shall be deposited as received into the endowment fund,
21  which shall be promptly invested and accounted for separately. The pro-
22  gram fund and the endowment fund shall be separately administered.
23    (b)  Any person, firm or corporation may make gifts and grants to the
24  endowment fund and require as a condition that the income from the
25  gifts and grants shall be applied only to the benefit of a particular group
26  or class of beneficiaries, such as the beneficiaries of participants who are
27  employees or members of a particular organization. Such special pay-
28  ments shall not affect the rights of all beneficiaries to share in the
     general
29  unrestricted income of the endowment fund as provided in subsection
30    (c) on a basis of pro rata equality with other beneficiaries.
     Notwithstand-
31  ing any provisions in any such gifts or grants limiting same to a specific
32  class of beneficiaries, such gifts or grants shall be irrevocable.
33    (c)  Each beneficiary under a participation agreement shall receive a
34  pro rata interest in the investment income derived by the endowment
35  fund. The amount received shall be in the ratio that the principal amount
36  paid by the participant under such participation agreement and interest
37  earned to date thereon bears to the principal amount of all moneys, funds
38  and securities then held in the program fund. At the time any payments
39  or disbursements for higher education costs are due from the trust to any
40  institution of higher education in Kansas under a participation agreement,
41  the trust shall also pay from endowment fund income such proportionate
42  amount, which shall be transferred directly to the institution of higher
43  education in Kansas simultaneously with the payment made from the
44  program fund and shall be used for payment of higher education costs of
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 2  -the beneficiary. Moneys accrued by participants in the program fund of
 3  the trust may be used for payments to any institution of higher education.
 4  However, no rights to any moneys derived from the endowment fund
 5  shall exist if moneys payable under the participation agreement are paid
 6  to an educational institution which is not an institution of higher
     education
 7  in this state, as defined by this act.
 8    Sec. 8.  Participants shall be permitted to substitute beneficiaries at
 9  any time, except that in the event the substitute beneficiary shall be eli-
10  gible for enrollment at an institution of higher education upon a date
11  earlier than the original beneficiary, the trust shall either require the
12  payment by the participant of a fee or cost actuarially determined to place
13  the substituted beneficiary on a basis of actuarial parity with the original
14  beneficiary or pay benefits at a reduced rate equal to the rate of return
15  generated by the participation agreement and the endowment fund dur-
16  ing such lesser time period. There shall be no penalty if the substituted
17  beneficiary is a member of the immediate family of the participant, but
18  if such substituted beneficiary is not a member of the immediate family
19  of the beneficiary, the board may impose a reasonable penalty.
20    Sec. 9.  (a) Any participant may cancel a participation agreement at
21  will. In the event the participation agreement is canceled by a participant
22  prior to the expiration of two years from the date of original execution of
23  the participation agreement, there shall be refunded to the participant
24  100% of the principal amount of all contributions made by the participant
25  with no payment of interest thereon, and the participant shall also be
26  required to pay a reasonable administrative refund fee, which shall be
27  sufficient to reasonably compensate the trust for its administrative costs
28  incident to the participation agreement. After a participation agreement
29  has been in effect for two years, participants shall be entitled to the
     return
30  upon cancellation thereof of the principal amount of all contributions
31  made by participants plus interest on such contributions at the actual rate
32  of interest applicable thereto upon the payment of a reasonable admin-
33  istrative refund fee to be levied by the trust, which shall be sufficient to
34  reasonably compensate the trust for its administrative costs incident to
35  the participation agreement.
36    (b)  Upon the occurrence of any of the following circumstances, no
37  reasonable administration refund fee shall be levied by the trust in the
38  event of termination of a participation agreement:
39    (1)  Death of the beneficiary;
40    (2)  failure of the beneficiary to be admitted to an institution of
     higher
41  education after filing a proper application for admission thereto;
42    (3)  permanent disability or mental incapacity of the beneficiary; or
43    (4)  cancellation of a vested participation agreement.
44  In the event of cancellation of a participation agreement for any of the
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 2  -foregoing causes, the participant shall be entitled to receive the
     principal
 3  amount of all payments made by the participant under the participation
 4  agreement and the actual interest earned on the payments.
 5    Sec. 10.  For all purposes of law, the following shall be applicable:
 6    (a)  The participant shall retain ownership of all payments made under
 7  any participation agreement up to the date of utilization for payment of
 8  higher education costs for the beneficiary, and all interest derived from
 9  the investment of the payments made by the participant shall be deemed
10  to be held in trust for the trust until the date of payment for higher
11  education costs and thereafter for the benefit of the beneficiary;
12    (b)  in the event the participation agreement is terminated prior to
13  payment of higher education costs for the beneficiary, the participant shall
14  retain ownership of all payments made under the participation agreement
15  plus interest on all the payments at the rate of interest at which the
16  payments were invested, except cases of voluntary participant termination
17  within two years from the date of the participation agreement, less a
18  reasonable administrative refund fee of the trust; or, if the participation
19  agreement is terminated after partial utilization of benefits for the ben-
20  eficiary, on a pro rata basis based upon the foregoing;
21    (c)  the institution of higher education shall obtain ownership of the
22  payments made for the higher education costs paid to the institution at
23  the time each payment is made to the institution; and
24    (d)  any amounts which may be paid pursuant to the Kansas educa-
25  tional savings plan trust, which are not listed in this section, shall be
26  owned by the trust.
27    Sec. 11.  No student loan program, student grant program or other
28  program administered by any agency of this state, except as may be oth-
29  erwise provided by federal law or the provisions of any specific grant
30  applicable thereto, shall take into account and consider amounts available
31  for the payment of higher education costs pursuant to the Kansas edu-
32  cational savings plan trust in determining need and eligibility for student
33  aid.
34    Sec. 12.  In connection with any participation agreement as to which
35  benefits for payment of higher education costs have accrued and are being
36  paid or are eligible to be paid, the participant thereof may borrow from
37  the trust, but only for the purpose of paying higher education costs to an
38  institution of higher education. The interest rate payable by participants
39  for any such borrowing shall be a rate as established by the board from
40  time to time. Any contribution to such loan program from trust funds or
41  any loan made with trust funds shall be insured.
42    Sec. 13.  The trust shall annually prepare or cause to be prepared an
43  accounting of the trust and shall transmit a copy of the accounting to the
44  governor and the legislature. The trust shall also transmit copies of the
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 2  -accounting to the participants. The accounts and books of the trust shall
 3  be subject to annual audit by an independent firm of certified public
 4  accountants.
 5    Sec. 14.  The property of the trust and its income from operations
 6  shall be exempt from all taxation by the state or any political or taxing
 7  subdivision of the state. Interest earned on moneys paid by any participant
 8  shall not be subject to imposition of income tax upon a participant or any
 9  beneficiary of a participation agreement, the purposes for which the in-
10  terest was accrued being deemed and declared to be entirely public in
11  nature. Contributions made to the endowment fund shall not be subject
12  to income tax of the state of Kansas.
13    Sec. 15.  The assets of the trust, including the program fund and the
14  endowment fund, at all times, shall be preserved, invested and expended
15  solely and only for the purposes of the trust and shall be held in trust for
16  the participants and beneficiaries and no property rights therein shall
     exist
17  in favor of the state. The assets shall not be transferred or used by the
18  state for any purposes other than the purposes of the trust.
19    Sec. 16.  This act shall be construed liberally in order to effectuate
20  its purposes. The purposes of the act and all provisions of the act with
21  respect to powers granted shall be broadly interpreted to effectuate such
22  intent and purposes and not as to any limitation of powers.
23    Sec. 17.  This act shall take effect and be in force from and after its
24  publication in the statute book.