CHAPTER 104 SENATE BILL No. 403 An  Act concerning the postsecondary education savings program; amending K.S.A. 2001
Supp. 60-2308 and 75-646 and repealing the existing sections. Be it enacted by the Legislature of the State of Kansas:

      Section  1. K.S.A. 2001 Supp. 60-2308 is hereby amended to read as
follows: 60-2308. (a) Money received by any debtor as pensioner of the
United States within three months next preceding the issuing of an exe-
cution, or attachment, or garnishment process, cannot be applied to the
payment of the debts of such pensioner when it appears by the affidavit
of the debtor or otherwise that such pension money is necessary for the
maintenance of the debtor's support or a family support wholly or in part
by the pension money. The filing of the affidavit by the debtor, or making
proof as provided in this section, shall be prima facie evidence of the
necessity of such pension money for such support. It shall be the duty of
the court in which such proceeding is pending to release all moneys held
by such attachment or garnishment process, immediately upon the filing
of such affidavit, or the making of such proof.

      (b) Except as provided in subsection (c), any money or other assets
payable to a participant or beneficiary from, or any interest of any partic-
ipant or beneficiary in, a retirement plan which is qualified under sections
401(a), 403(a), 403(b), 408, 408A or 409 of the federal internal revenue
code of 1986 and amendments thereto shall be exempt from any and all
claims of creditors of the beneficiary or participant. Any such plan shall
be conclusively presumed to be a spendthrift trust under these statutes
and the common law of the state. All records of the debtor concerning
such plan or arrangement and of the plan concerning the debtor's partic-
ipation in the plan or arrangement shall be exempt from the subpoena
process.

      (c) Any plan or arrangement described in subsection (b) shall not be
exempt from the claims of an alternate payee under a qualified domestic
relations order. However, the interest of any and all alternate payees
under a qualified domestic relations order shall be exempt from any and
all claims of any creditor, other than the state department of social and
rehabilitation services, of the alternate payee. As used in this subsection,
the terms ``alternate payee'' and ``qualified domestic relations order'' have
the meaning ascribed to them in section 414(p) of the federal internal
revenue code of 1986 and amendments thereto.

      (d) The provisions of subsections (b) and (c) shall apply to any pro-
ceeding which: (1) Is filed on or after July 1, 1986; or (2) was filed on or
after January 1, 1986, and is pending or on appeal July 1, 1986.

      (e) Money held by the central unit for collection and disbursement
of support payments designated pursuant to K.S.A. 23-4,118, and amend-
ments thereto, the state department of social and rehabilitation services,
any clerk of a district court or any district court trustee in connection
with a court order for the support of any person, whether the money is
identified as child support, spousal support, alimony or maintenance, shall
be exempt from execution, attachment or garnishment process.

      (f)  (1) The provisions of this subsection shall apply to any proceeding
which:

      (A) Is filed on or after January 1, 2002; or

      (B) was filed prior to January 1, 2002, and is pending on or on appeal
after January 1, 2002.

      (2) Except as provided by paragraphs (3) and (4) of this subsection,
if the designated beneficiary of a family postsecondary education savings
account established pursuant to K.S.A. 2001 Supp. 75-640 et seq., and
amendments thereto, is a lineal descendant of the account owner, all mon-
eys in the account shall be exempt from any claims of creditors of the
account owner or designated beneficiary.

      (3) The provisions of paragraph (2) of this subsection shall not apply
to:

      (A) Claims of any creditor of an account owner, as to amounts con-
tributed within a one-year period preceding the date of the filing of a
bankruptcy petition under 11 USC section 101 et seq.; or

      (B) claims of any creditor of an account owner, as to amounts con-
tributed within a one-year period preceding an execution on judgment for
such claims against the account owner.

      (4) The provisions of paragraph (2) of this subsection shall not apply
to:

      (A) Claims of any creditor of an account owner, as to amounts ex-
ceeding $5,000 contributed within a period of time which is more than
one year but less than two years preceding the date of the filing of a
bankruptcy petition under 11 USC section 101 et seq.; or

      (B) claims of any creditor of an account owner, as to amounts ex-
ceeding $5,000 contributed within a period of time which is more than
one year but less than two years preceding an execution on judgment for
such claims against the account owner.

      Sec.  2. K.S.A. 2001 Supp. 75-646 is hereby amended to read as fol-
lows: 75-646. (a) Family postsecondary education savings accounts estab-
lished pursuant to the provisions of K.S.A. 2001 Supp. 75-640 to 75-648,
and amendments thereto shall be governed by the provisions of this sec-
tion.

      (b) A family postsecondary education savings account may be opened
by any person or persons who desire to save money for the payment of
the qualified higher education expenses of the designated beneficiary.
Such persons shall be considered the account owner.

      (1) An application for such account shall be in the form prescribed
by the state treasurer and contain the following:

      (A) The name, address and social security number or employer iden-
tification number of the account owner or owners;

      (B) the designation of a designated beneficiary;

      (C) the name, address and social security number of the designated
beneficiary;

      (D) the certification relating to no excess contributions; and

      (E) such other information as the state treasurer may require.

      (2) The state treasurer may establish a nominal nonrefundable ap-
plication fee for such application.

      (c) Only the account owner or owners From and after January 1,
2002, any person may make contributions to the account after the account
is opened.

      (d) Contributions to accounts may be made only in cash.

      (e) An account owner may withdraw all or part of the balance from
an account on sixty-days notice or such shorter period as may be author-
ized under rules and regulations governing the program. Such rules and
regulations shall include provisions that will generally enable the deter-
mination as to whether a withdrawal is a nonqualified withdrawal or a
qualified withdrawal. Such rules and regulations may require one or more
of the following:

      (1) An account owner seeking to make a qualified withdrawal must
provide certification of qualified higher education expenses in a form and
manner and pursuant to the method consistent with the requirements of
K.S.A. 2001 Supp. 75-640 to 75-648, and amendments thereto; and

      (2) withdrawals not meeting the requirements of K.S.A. 2001 Supp.
75-640 to 75-648, and amendments thereto shall be treated as nonqual-
ified withdrawals by the program manager and if such withdrawals are
subsequently deemed qualified withdrawals, the account owner must seek
any refund of penalties directly from the program.

      (f)  (1) An account owner may change the designated beneficiary of
an account to an individual who is a member of the family of the prior
designated beneficiary in accordance with procedures established pur-
suant to the provisions of K.S.A. 2001 Supp. 75-640 to 75-648, and
amendments thereto.

      (2) An account owner may transfer all or a portion of an account to
another family postsecondary education savings account, the designated
beneficiary of which is a member of the family as defined in section 529
of the federal internal revenue code of 1986, as amended.

      (3) Changes in designated beneficiaries and transfers under this sub-
section shall not be permitted to the extent that they would constitute
excess contributions or unauthorized investment choices.

      (g) In the case of any nonqualified withdrawal from an account, an
amount equal to 10% of the portion of the withdrawal constituting earn-
ings as determined in accordance with the principles of section 529 of
the federal internal revenue code of 1986, as amended, shall be withheld
as a penalty and paid to the Kansas postsecondary education savings pro-
gram.

      (h) The penalty prescribed in subsection (g) may be increased if the
state treasurer determines that the amount of such penalty must be in-
creased to constitute a greater than de minimis penalty for purposes of
qualifying the program as a qualified state tuition program as defined in
section 529 of the federal internal revenue code of 1986, as amended.

      (i) If an account owner makes a nonqualified withdrawal and no pen-
alty amount is withheld pursuant to subsection (g) or the amount withheld
was less than the amount required to be withheld under such subsection
for nonqualified withdrawals, the account owner shall pay the unpaid
portion of the penalty to the program at the same time that the account
owner files the earlier of the account owner's state or federal income tax
return for the taxable year of the withdrawal or if such account owner
does not file such return, the due date for such returns but in any event
on or before the due date for such return taking into account any au-
thorized extensions.

      (j) The program shall provide separate accounting for each desig-
nated beneficiary.

      (k) (h) No account owner or designated beneficiary Subject to the
provisions of section 529 of the internal revenue code of 1986, in effect
on January 1, 2002, or later versions as established in rules and regula-
tions adopted by the treasurer, an account owner of any account shall be
permitted to direct the investment of any contributions to an account or
the earnings thereon.

      (l) (i) Neither an account owner nor a designated beneficiary may use
an interest in an account as security for a loan. Any pledge of an interest
in an account shall be of no force and effect.

      (j) Except as provided in K.S.A. 2001 Supp. 75-640 through 75-648,
and amendments thereto, or section 529 of the federal internal revenue
code of 1986, as amended, any withdrawal made within one year after
an account has been opened under a qualified tuition program as defined
in section 529 of the federal internal revenue code of 1986, as amended,
is a nonqualified withdrawal.

      (m) (k)  (1) The state treasurer shall adopt rules and regulations to
prevent contributions on behalf of a designated beneficiary in excess of
an amount equal to the average amount of the qualified higher education
expenses that would be incurred for five years of study at institutions of
postsecondary education located in the midwest states. Such amount shall
be determined annually by the state treasurer.

      (2) Such rules and regulations shall include requirements that any
excess contributions with respect to a designated beneficiary be promptly
withdrawn in a nonqualified withdrawal or transferred to another account.

      (n) (l)  (1) If there is any distribution from an account to any individ-
ual or for the benefit of any individual during a calendar year, such dis-
tribution shall be reported to the federal internal revenue service and the
account owner or owners, the designated beneficiary, or the distributee
to the extent required by federal law or regulation.

      (2) Statements shall be provided to each account owner at least once
each year within 60 days after the end of the twelve-month period to
which they relate. The statement shall identify the contributions made
during a preceding twelve-month period, the total contributions made to
the account through the end of the period, the value of the account at
the end of such period, distributions made during such period and any
other information that the state treasurer shall require to be reported to
the account owner.

      (3) Statements and information relating to accounts shall be prepared
and filed to the extent required by federal and state tax law.

      (o) (m)  (1) A state or local government, or agency or instrumentality
thereof, or organization described in section 501(c) (3) of the federal
internal revenue code of 1986, as amended, may open and become the
account owner of an account to fund scholarships for persons whose iden-
tity will be determined upon disbursement.

      (2) In the case of any account opened pursuant to provision (1) of
this subsection, the requirement set forth in subsection (b) that a desig-
nated beneficiary be designated when an account is opened shall not
apply and each individual who receives an interest in such account as a
scholarship shall be treated as a designated beneficiary with respect to
such interest.

      (p) (n) An annual fee may be imposed upon the account owner or
owners for the maintenance of the account.

      (q) An account must be open at least two years before a qualified
withdrawal can be made. The state treasurer may adopt rules and regu-
lations providing for exceptions to the foregoing requirements for such
extenuating circumstances as the state treasurer deems necessary and
appropriate.

      (r) (o) An account owner or designated beneficiary of a Kansas pos-
tsecondary education savings account must be a citizen or resident of the
United States of America.

      (s) (p) The program shall disclose the following information in writing
to each account owner and prospective account owner of a family postse-
condary education savings account:

      (1) The terms and conditions for purchasing a family postsecondary
education savings account;

      (2) any restrictions on the substitution of beneficiaries;

      (3) the person or entity entitled to terminate the savings agreement;

      (4) the period of time during which a beneficiary may receive benefits
under the savings agreement;

      (5) the terms and conditions under which money may be wholly or
partially withdrawn from the program, including, but not limited to, any
reasonable charges and fees that may be imposed for withdrawal;

      (6) the probable tax consequences associated with contributions to
and distributions from accounts; and

      (7) all other rights and obligations pursuant to savings agreements,
and any other terms, conditions and provisions deemed necessary and
appropriate by the state treasurer.

      (t) (q) Nothing in K.S.A. 2001 Supp. 75-640 to 75-648, and amend-
ments thereto, or in any savings agreement entered into pursuant to
K.S.A. 2001 Supp. 75-640 to 75-648, and amendments thereto, shall be
construed as a guarantee by the state of Kansas or any institution of pos-
tsecondary education that a beneficiary will be admitted to the institution
of postsecondary education or, upon admission to any institution of pos-
tsecondary education, will be permitted to continue to attend or will re-
ceive a degree from such institution of postsecondary education.

      (r) The amendments to this section by this act shall apply to any
action or transaction taken or occurring from and after January 1, 2002. 
Sec.  3. K.S.A. 2001 Supp. 60-2308 and 75-646 are hereby repealed.
 Sec.  4. This act shall take effect and be in force from and after its
publication in the Kansas register.

Approved May 13, 2002.
 Published in the Kansas Register May 23, 2002.
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