Brief ⁽¹⁾

HB 2655 would make changes to the Kansas Postsecondary Education Savings Program, which was enacted in 1999 and is administered by the State Treasurer.

The proposed changes are the following:

• "Account owner" would be defined as "person or persons," which is a broader category than the current definition of "individual." "Person or persons" includes corporations, estates, and trusts, as well as individuals, and would allow these entities to own a postsecondary education savings account. The change would bring the Kansas law into conformity with Section 529 of the Internal Revenue Code (IRC), which applies to qualified state tuition programs.

• The term "rollover distribution" would be included in the definition section of the bill in order to bring the program into conformity with the IRC. The term refers to the ability of an account owner to change beneficiaries, as long as an account is transferred to another member of the beneficiary's family. "Family" is broadly defined in federal law to include parents, grandparents, siblings, step-siblings, certain in-laws, and the spouses of the aforementioned relations. In addition, an account owner in Kansas would be able to transfer money in an account to an account in another state that has a state tuition program that qualifies under federal law.



• The authority of the State Treasurer to charge an application fee of persons who open an education savings program account would be changed from a requirement to an option.



• The penalty for an unqualified withdrawal (one not for educational purposes) would be changed from 15 percent of the earnings withdrawn, plus forfeiture of the interest on the withdrawn portion, to 10 percent of the earnings on the amount withdrawn. In addition, other changes would be made to conform language concerning the penalty to IRC Section 529. A provision also would be added to require an account owner to pay previously deducted taxes on any part of a withdrawal that is not for educational purposes.



• The portion of the statute that allows local governments or organizations described in Section 501 of the IRC to open education savings accounts in order to fund scholarships would be broadened to include the state or an instrumentality of the state. An example of the effect of this change would be that a Regents institution could participate in the Postsecondary Education Savings Program for the purpose of awarding scholarships.



• The requirement that an account must be opened before the designated beneficiary reaches 25 years of age would be deleted. Also deleted would be the requirement that qualified withdrawals must be completed by the time the beneficiary reaches 30 years of age or within ten years after the first qualified withdrawal is made, whichever comes first.



• The provision relating to married couples filing a joint income tax return would be changed to allow them to claim a Kansas income tax deduction of up to $4,000 for each beneficiary for whom contributions to an account have been made. Currently, married couples filing joint Kansas income tax returns are subject to the same $2,000 limit that applies to individuals.



• For state employees, the option would be made available to contribute to an education savings account through a payroll deduction from their salaries and wages.



• The statute is amended to make clear that an account owner or designated beneficiary must be either a resident or citizen of the United States. Under the current law, United States residency is required.



• Other technical changes would be made to conform the Kansas program to Section 529 of the IRC.



• The bill becomes effective on publication in the Kansas Register.

Background

The changes to current law contained in HB 2655 were proposed by State Treasurer Tim Shallenburger. The Kansas Postsecondary Education Savings Program is under the State Treasurer's administration and will become operational July 1, 2000. The program is intended to help people participate in a savings plan to pay for higher education expenses.

Several changes suggested to the House Education Committee by Mr. Shallenburger would bring the Kansas statute into conformity with the section of the federal Internal Revenue Code that pertains to state student tuition programs. Other changes include reducing the penalty for withdrawing money from an account for other than qualified educational purposes, which is intended to make the Kansas program competitive with similar programs in other states, according to Mr. Shallenburger.

Deleting the age requirement that pertains to when an account must be opened and deleting restrictions that apply to how long withdrawals from an account may be made were advocated by the Treasurer on behalf of nontraditional students and life-long learners who might have educational expenses throughout their lives.

Also speaking in support of HB 2655 before both the House and Senate Education Committees was Bill Bates, Vice President of Government Affairs, American Century Investments. The Kansas City company has been selected by the State Treasurer as the investment manager for the Kansas Postsecondary Education Savings Program. There were no opponents to the bill.

A fiscal note prepared by the Division of the Budget indicates that enactment of the bill would have minimal fiscal impact. According to the Budget Division, when the 1999 Legislature considered legislation to create the Kansas Postsecondary Education Savings Program, the estimated impact of the program was based on deductions of up to $2,000 per Kansas taxpayer. Allowing married couples to claim a deduction of up to $4,000 would not greatly change the assumptions upon which the original fiscal note was based. Any costs associated with state employees contributing to education savings accounts through payroll deductions could be absorbed by the Division of Accounts and Reports, Department of Administration.

The Senate Committee on Education amended the bill to incorporate two additional changes proposed by State Treasurer Tim Shallenburger:

• to specify that an account owner or beneficiary may be a resident or citizen of the United States (instead of only a resident); and



• to make the bill become effective upon publication in the Kansas Register.

The Senate Committee of the Whole amendment was technical in nature.

1. *Supplemental notes are prepared by the Legislative Research Department and do not express legislative intent. The supplemental note and fiscal note for this bill may be accessed on the Internet at http://www.ink.org/public/legislative/bill_search.html