TITLE 34. PUBLIC FINANCE

PART 1. COMPTROLLER OF PUBLIC ACCOUNTS

CHAPTER 7. PREPAID HIGHER EDUCATION TUITION PROGRAM

SUBCHAPTER N. TEXAS ACHIEVING A BETTER LIFE EXPERIENCE (ABLE) PROGRAM

34 TAC §§7.181, 7.183 - 7.185, 7.187, 7.194

The Comptroller of Public Accounts proposes amendments to §7.181, concerning definitions; §7.183, concerning participation agreement; §7.184, concerning designated beneficiary and eligible individual; §7.185, concerning participant; §7.187, concerning contributions; and §7.194, concerning investments.

The amendments to §7.181 update the citation in subsection (a) to reference the relevant Education Code provisions, instead of the 2015 Senate Bill, which has been recently amended; change "custodian" to "guardian" in subsection (a)(8) and (a)(17) because a custodian is more commonly referred to as a guardian under Texas law; delete "future" in subsection (a)(8) and (a)(20) because they are redundant; clarify that the requirements in subsection (a)(8) and (a)(11) are also subject to Internal Revenue Service regulations or guidance; change "eligibility affidavit" to "eligibility certification," which is self-certified under penalty of perjury (instead of under oath), in subsection (a)(10) and (a)(11) to allow the certification, which is in compliance with state and federal law; clarify that the requirements in subsection (a)(10) are also subject to state or federal guidance; delete subsection (a)(10)(A) and (a)(10)(B) because the language in the subparagraphs is no longer complete since it has been further interpreted by federal guidance; and clarify that expenses referenced in subsection (a)(20) may also be identified in the Internal Revenue Service regulations or guidance.

The amendments to §7.183 change "eligibility affidavit" to "eligibility certification" in subsection (c)(3) and "verification under oath" to "certification under penalty of perjury" in subsection (c)(10) to allow the certifications, which are in compliance with state and federal law, to be made in the Program's online application; and clarify that the requirements in subsection (c)(3) are also subject to state or federal guidance.

The amendments to §7.184 delete the current language in subsection (a) because this language is no longer complete since it has been further interpreted by federal guidance; and simplify the language in the current language of subsection (b) to make it more readable.

The amendment to §7.185 deletes "custodian" in subsection (a) because it is redundant since the term "guardian" is also listed in this subsection.

The amendments to §7.187 change "or" to "and" in subsection (b) to clarify that all three requirements must be present before a contribution will be accepted for an ABLE account; clarify in paragraph (3) that one of the requirements for a contribution to be accepted for an ABLE account is that the contribution would not result in contributions from all contributors to an ABLE account for the taxable year exceeding an excess contribution as defined in these rules; and remove in subsection (d) the requirement that the Program obtain a taxpayer identification number ("TIN") before returning excess contributions unless the Program is required to obtain it by federal law because federal law only requires the Program to obtain a TIN under limited circumstances.

The amendment to §7.194 changes "custodians" to "guardians" in subsection (i) because a custodian is more commonly referred to as a guardian under Texas law.

Tom Currah, Chief Revenue Estimator, has determined that during the first five years that the proposed amendments are in effect, the rules: will not create or eliminate a government program; will not require the creation or elimination of employee positions; will not require an increase or decrease in future legislative appropriations to the agency; will not require an increase or decrease in fees paid to the agency; will not increase or decrease the number of individuals subject to the rules' applicability; and will not positively or adversely affect this state's economy. This proposal amends existing rules.

Mr. Currah also has determined that for each year of the first five years the rules are in effect, the public benefit anticipated as a result of enforcing the rule will be by clarifying the programs requirements. The proposed amendments would have no fiscal impact on small businesses. There is no significant anticipated economic cost to individuals who are required to comply with the proposed rules.

Comments on the proposals may be submitted to Linda Fernandez, Director, Educational Opportunities and Investment Division, Comptroller of Public Accounts, at P.O. Box 13407, Austin, Texas 78711-3407 or at Linda.Fernandez@cpa.texas.gov. Comments must be received no later than 30 days from the date of publication of the proposal in the Texas Register.

These amendments are proposed under Education Code, §54.904(a)(2), which authorizes the Prepaid Higher Education Tuition Board in the Comptroller of Public Accounts to adopt rules to implement the Texas Achieving a Better Life Experience Program.

These amendments implement Education Code, Chapter 54, Subchapter J, concerning the Texas Achieving a Better Life Experience Program.

§7.181.Definitions.

(a) The following words, terms, and phrases, when used in this subchapter, shall have the following meanings. In addition, definitions set forth in Internal Revenue Code, §529A and Education Code, Chapter 54, Subchapter J [Senate Bill 1664, 84th Legislature, 2015] are incorporated in these rules.

(1) ABLE account or "account"--Has the meaning assigned by Internal Revenue Code, §529A and means an account in the Texas ABLE Program.

(2) ABLE Program or "Program"--The Texas Achieving a Better Life Experience Program created under Education Code, Chapter 54, Subchapter J.

(3) Available funds--The balance of funds held in an ABLE account, after deducting any holds, fees or expenses, or pending transactions, including funeral expenses that may be incurred following the death of a designated beneficiary.

(4) Board--Prepaid Higher Education Tuition Board established under Education Code, §54.602.

(5) Contribution--Amounts paid by contributors to an ABLE account.

(6) Contributor--Any person who makes a contribution to an ABLE account.

(7) Designated beneficiary--A resident of this state with a disability who is an eligible individual and named as the beneficiary of an ABLE account. The term may also include out-of-state residents to the extent allowed by law.

(8) Disability certification--With respect to the individual who is the eligible individual, a certification to the satisfaction of the Secretary of the United States Treasury by the individual or the parent or guardian [custodian], or other authorized fiduciary of the individual, that certifies that the individual has a medically determinable physical or mental impairment, which results in marked and severe functional limitations, and which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months, or is blind within the meaning of Social Security Act, §1614(a)(2) and such blindness or disability occurred before the date on which the individual attained age 26, subject to any [future] changes or modifications in eligibility criteria in Internal Revenue Code, §529A or Internal Revenue Service regulations or guidance.

(9) Distribution--Any amounts paid by the ABLE Program to or on behalf of an eligible individual.

(10) Eligibility certification [affidavit]--The participant's self-certification [self-verification] under penalty of perjury [oath] in a format acceptable to the Board or as required by state or federal regulations or guidance that the designated beneficiary of the account is currently an eligible individual as defined by Internal Revenue Code, §529A. [because:]

[(A) the designated beneficiary of the account is currently entitled to benefits based on blindness or disability under Social Security Act, Title II or XVI and such blindness or disability occurred before the date on which the individual attained age 26, subject to any future changes or modifications in eligibility criteria in Internal Revenue Code, §529A; or]

[(B) a disability certification with respect to the designated beneficiary that meets the requirements of Internal Revenue Code, §529A(e)(2) has been filed with the Secretary of the United States Treasury for such taxable year.]

(11) Eligible individual--A person who meets the requirements of Internal Revenue Code, §529A or Internal Revenue Service regulations or guidance and is certified by an eligibility certification [affidavit] to the Board as eligible to participate in the ABLE Program.

(12) Eligible member of the family--An eligible individual and a member of the family of the former beneficiary to the extent provided by Internal Revenue Code, §529A.

(13) Excess contribution--Contributions that would cause an ABLE account to exceed:

(A) the amount established by the Board in accordance with Internal Revenue Code, Title 26, §529(b)(6); or

(B) the amount in effect under Internal Revenue Code, Title 26, §2503(b) for the calendar year in which the taxable year begins in accordance with Internal Revenue Code, §529A.

(14) Financial institution--A bank, a trust company, a depository trust company, an insurance company, a broker-dealer, a registered investment company or investment manager, the Texas Treasury Safekeeping Trust Company, or another similar financial institution authorized to transact business in this state.

(15) Internal Revenue Code--The Internal Revenue Code of 1986.

(16) Investment options--Investment options offered by the Program for selection by the participant.

(17) Participant--A designated beneficiary or the parent or guardian [custodian] or other fiduciary of the beneficiary who has entered into a participation agreement.

(18) Participation agreement--A contract between a participant and the Board under this subchapter that conforms to the requirements prescribed by this subchapter and Internal Revenue Code, §529A and includes the application for enrollment submitted in good order.

(19) Plan manager--An entity, including a financial institution, any state or federal agency, contractor or state or multi-state consortium engaged by the Board to carry out certain duties as specified and delegated by the Board for administration of the Program.

(20) Qualified disability expenses--Any expenses related to the eligible individual's blindness or disability that are made for the benefit of the eligible individual who is the designated beneficiary, and includes expenses for 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 any other expenses that may be identified from time to time in Internal Revenue Service regulations or [future] guidance [published in the Internal Revenue Bulletin] or by amendments to Internal Revenue Code, §529A.

(21) Transfer to state--The reimbursement that may be paid to the state Medicaid program upon the designated beneficiary's death. After timely claim submitted in good order, the reimbursement will be made from any available funds and will be calculated according to Internal Revenue Code, §529A(f).

(b) In the event of a conflict in the definitions, the Program definitions shall be governed by Internal Revenue Code, §529A, Education Code, Chapter 54, Subchapter J, and these rules, in that order.

§7.183.Participation Agreement.

(a) The Board will designate the start date of the Texas ABLE Program. The Board may begin enrolling participants as soon as reasonably practical to allow sufficient time for successful development and implementation of the Program. To enroll in the Program, a participant shall enter into a participation agreement with the Board to establish an ABLE account for an Eligible Individual.

(b) The participation agreement may include, but is not limited to, the following terms:

(1) the requirements and applicable restrictions for:

(A) opening an ABLE account;

(B) making contributions to an ABLE account; and

(C) limiting the directing of the investment of contributions, earnings, or balance of the account, as provided under Internal Revenue Code, §529A.

(2) The eligibility requirements for a participant to enter into a participation agreement and the rights of the participant and designated beneficiary, if other than the participant;

(3) administrative and other fees and charges applicable to the ABLE account;

(4) the terms and conditions under which an ABLE account or participation agreement may be modified, transferred, or terminated; and

(5) any other terms and conditions the Board considers necessary or appropriate, including those necessary to conform the ABLE account to the requirements of Internal Revenue Code, §529A and other applicable state or federal laws or requirements.

(c) The participant must provide the following information on the participation agreement:

(1) the name, address, social security number or tax identification number, telephone number, relationship to beneficiary, and email, if any, of the participant;

(2) the name, address, date of birth, and social security number of the designated beneficiary;

(3) an eligibility certification [affidavit ] in a format approved by the Board or required by state or federal regulations or guidance to self-certify that the designated beneficiary is an eligible individual;

(4) directions related to investment of account contributions and earnings, if any;

(5) acceptance of the terms and conditions of the Texas ABLE Program, including any subsequent modifications, transfers, amendments, or terminations;

(6) acceptance of any fees and charges applicable to a Texas ABLE account;

(7) acceptance of the terms under which another person may be substituted as the designated beneficiary;

(8) acceptance of the terms under which another person may be substituted as the participant;

(9) acceptance of the calendar year as the taxable year for purposes of the Program;

(10) a certification [verification] under penalty of perjury [oath] that, unless the participant is also the designated beneficiary, the participant does not have and will not acquire a beneficial interest in the ABLE account and that the participant will administer the account for the benefit of the designated beneficiary; and

(11) any other information required by the Board.

(d) If the Board finds a participant has made a material misrepresentation regarding personal information or eligibility on the participation agreement or in any communication regarding the Texas ABLE Program, the Board may refund the balance of any available funds in the ABLE account subject to any unpaid expenses or fees due the Program and, if applicable, transfer to state following the designated beneficiary's death.

(e) The Board may amend a participation agreement throughout the term of the agreement.

(f) The participant is responsible for maintaining up-to-date contact information for the ABLE account.

(g) The terms of the participation agreement shall be binding on the designated beneficiary and participant.

(h) The rights of participants and designated beneficiaries are subject to the provisions of these rules; Education Code, Chapter 54, Subchapter J; Internal Revenue Code, §529A; and the terms and conditions of the participation agreement. To the extent of irreconcilable conflict, the provisions of Internal Revenue Code, §529A; Education Code, Chapter 54, Subchapter J; and these rules prevail over the participation agreement.

(i) Any amendment to Internal Revenue Code, §529A; Education Code, Chapter 54, Subchapter J; or these rules that would apply to a participation agreement, will automatically govern over the participation agreement to the extent of any conflict, and the participation agreement will be automatically amended to accommodate such changes. The Board shall provide prompt notification to participants of any such amendments in written or electronic form as determined by the Board.

§7.184.Designated Beneficiary and Eligible Individual.

[(a) Subject to any changes in federal or state laws, an individual is an eligible individual for a taxable year if during such taxable year:]

[(1) the individual is entitled to benefits based on blindness or disability under Social Security Act, Title II or XVI and such blindness or disability occurred before the date on which the individual attained age 26, subject to any future changes or modifications in eligibility criteria in Internal Revenue Code, §529A; or]

[(2) a disability certification with respect to such individual that meets the requirements of Internal Revenue Code, §529A(e)(2) has been filed with the Secretary of the United States Treasury for such taxable year.]

(a) [(b) An [Further, an individual is an] eligible individual must be [only if the individual is] a resident of Texas at the time the ABLE account is established. The Board may act to accept out-of-state residents into the Program to the extent allowed by law.

(b) [(c)] If at any time, the Program becomes aware that the eligible individual no longer meets any residency requirements, if applicable, or no longer meets the requirements of Internal Revenue Code, §529A, the individual's ABLE account will be closed and any available funds will be refunded to the participant on behalf of the designated beneficiary. In the event that available funds are refunded by the Program because of failure to meet residency requirements or failure to meet the requirements of Internal Revenue Code, §529A, the Program will provide advance written or electronic notification to the participant of a pending refund within a reasonable time, but not less than thirty (30) days, prior to the refund by the Program.

(c) [(d)] The participant shall recertify that the designated beneficiary is an eligible individual:

(1) periodically as required by the Board in a form acceptable to the Board, or

(2) upon request to reestablish a closed account.

(d) [(e)] Beginning on the first day of the following calendar year that a beneficiary ceases to be an eligible individual, the Texas ABLE Program will no longer accept contributions to the beneficiary's ABLE account.

§7.185.Participant.

(a) The participant must be the designated beneficiary or a fiduciary authorized by law to act on behalf of the designated beneficiary, including a parent, guardian, [custodian,] or trustee. The Board may limit the types of fiduciaries allowed to be participants.

(b) Because a designated beneficiary is limited to one ABLE account, the participant who applies for enrollment must have the legal authority to act on behalf of a beneficiary. The Board may determine who has legal authority to apply for enrollment on behalf of a designated beneficiary, and may require written consent from individuals who have legal authority to act on behalf of a beneficiary.

(c) A participant who is not the designated beneficiary may not have or acquire a beneficial interest in an account.

(d) A participant who is not the designated beneficiary must administer the account for the benefit of the designated beneficiary.

§7.187.Contributions.

(a) Any person may make contributions to an ABLE account for a taxable year, for the benefit of a designated beneficiary who is an eligible individual for such taxable year. Any contributions to an ABLE account, excluding any excess contributions, are an asset of the account for the benefit of the designated beneficiary.

(b) No contributions will be accepted for an ABLE account unless:

(1) the contribution is in U.S. dollars in the form of a check, money order, cashier's check, automatic contribution plan, ACH, including SSI or SSDI electronic deposits to the extent allowable by law, or payroll deduction;

(2) the designated beneficiary is an eligible individual during the taxable year; and [or]

(3) [if] such contribution would not result in contributions from all contributors to an ABLE account for the taxable year exceeding [to exceed] an excess contribution as defined in these rules.

(c) Any contributions to an ABLE account on behalf of a designated beneficiary may be subject to any applicable Internal Revenue Service gift tax rules in effect at the time of the contribution, as provided by Internal Revenue Code, §529A.

(d) Excess contributions to an ABLE account will be rejected and refunded automatically to the contributor making the excess contribution after obtaining the taxpayer identification number of the contributor if required by federal law. In the event that excess contributions are refunded by the Program to the beneficiary or to the participant on behalf of the beneficiary, the Program will provide advance written or electronic notification to the beneficiary or participant of a pending refund within a reasonable time, but not less than thirty (30) days if allowed by state or federal law, prior to the refund by the Program.

(e) Any contributions returned for any of the above reasons will not include earnings or interest.

(f) Informational materials used in connection with a contribution to an ABLE account must clearly indicate that the account is not insured by this state and that neither the principal deposited nor the investment return is guaranteed by the state.

§7.194.Investments.

(a) The Board shall administer and invest the assets of the Program. The Board shall serve as the trustee of the assets of the Program.

(b) The Board may delegate to duly appointed financial institutions or plan manager(s) authority to act on behalf of the Board in the investment and reinvestment of all or part of the assets of the Program and may also delegate to those financial institutions or plan manager(s) the authority to act on behalf of the Board in the holding, purchasing, selling, assigning, transferring, or disposing of any or all of the securities and investments in which the funds in the ABLE account have been invested, as well as the proceeds from the investment of those funds.

(c) The Board may select one or more financial institutions to serve as custodian of all or part of the Program's assets.

(d) In the Board's discretion, the Board may contract with one or more financial institutions to serve as plan manager and to invest the money in ABLE accounts.

(e) In exercising or delegating investment powers and authority, the Board shall exercise ordinary business care and prudence under the facts and circumstances prevailing at the time of actions or decisions related to investment of assets of the Texas ABLE Program. A member of the Board is not liable for any action taken or omitted with respect to the exercise of, or delegation of, those powers and authority if the member discharged the duties of the member's position in good faith and with the degree of diligence, care, and skill that a prudent person acting in a like capacity and familiar with those matters would use in the conduct of an enterprise of a like character and with like aims.

(f) As applicable, the Board shall adopt an investment policy statement for the Program, set the asset allocation of the Program, select the underlying investments of the Program, and the Board shall promptly deposit and invest contributions, excluding any excess contributions, and any earnings as directed by the participant. No earnings or interest will accrue to an ABLE account before the funds have been invested.

(g) For investment purposes, the Board may pool funds, or authorize the pooling of funds, from ABLE accounts with other funds administered by the Board. If funds from the ABLE accounts are pooled with other funds administered by the Board, the Board shall track, monitor, report, and record separately, all investment activity related to the ABLE accounts, including any earnings, fees, or charges or expenses associated with each ABLE account.

(h) A participant may direct the investment of any contributions or any earnings on contributions only to the extent allowed by Internal Revenue Code, §529A.

(i) No investment, financial, or benefits advice is offered to participants, eligible individuals, eligible members of the family, parents, designated beneficiaries, or their guardians [custodians] or fiduciaries acting on their behalf, from the State of Texas, the comptroller, the Board, the Texas ABLE Program, the Texas ABLE Advisory Committee, or from their employees, vendors, or agents, nor do they assume any responsibility for the performance of any investment option. The decision to enroll in the Program, the selection of investment options, and the suitability of such options is entirely the responsibility of the participant.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on January 23, 2018.

TRD-201800236

Don Neal

Chief Deputy General Counsel

Comptroller of Public Accounts

Earliest possible date of adoption: March 11, 2018

For further information, please call: (512) 475-0387