HB5615 103RD GENERAL ASSEMBLY

LRB103 38735 RJT 68872 b

103RD GENERAL ASSEMBLY
State of Illinois
2023 and 2024
HB5615

Introduced 2/9/2024, by Rep. Tim Ozinga

SYNOPSIS AS INTRODUCED:

15 ILCS 505/16.11 new

Amends the State Treasurer Act. Provides that the State Treasurer may establish and administer the Education Scholarship Account as a qualified tuition program under Section 529 of the Internal Revenue Code. Provides that distributions from an account in the Education Scholarship Account may be used for the designated beneficiary's qualified expenses; defines "qualified expenses". Provides who may open an account under the Program. Provides that the Treasurer and the State Board of Education shall each cooperate in providing each other with account information, as necessary, to prevent contributions in excess of those necessary to provide for the qualified expenses of the designated beneficiary. Sets forth provisions concerning funds for the Program. Sets forth provisions concerning investment policies for the Account. Provides that the Treasurer shall work with the State Board of Education to coordinate the marketing of the Education Scholarship Account. Sets forth other provisions concerning administering the Education Scholarship Account Program. Provides for rulemaking.

A BILL FOR

AN ACT concerning State government.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 1. The State Treasurer Act is amended by adding Section 16.11 as follows:

(15 ILCS 505/16.11 new)

Sec. 16.11. Education Scholarship Account Program.

(a) As used in this Section:

"Account owner" means any person or entity who has opened an account or to whom ownership of an account has been transferred, as allowed by the Internal Revenue Code, and who has authority to withdraw funds, direct withdrawal of funds, change the designated beneficiary, or otherwise exercise control over an account in the Education Scholarship Account.

"Donor" means any person or entity who makes contributions to an account in the Education Scholarship Account.

"Designated beneficiary" means any individual designated as the beneficiary of an account in the Education Scholarship Account by an account owner. A designated beneficiary must have a valid social security number or taxpayer identification number. In the case of an account established as part of a scholarship program permitted under Section 529 of the Internal Revenue Code, the designated beneficiary is any individual receiving benefits accumulated in the account as a scholarship.

"Member of the family" has the same meaning ascribed to that term under Section 529 of the Internal Revenue Code.

"Nonqualified withdrawal" means a distribution from an account other than a distribution that: (i) is used for the qualified expenses of the designated beneficiary; (ii) results from the beneficiary's death or disability; (iii) is a rollover to another account in the Education Scholarship Account; or (iv) is a rollover to an ABLE account, as defined in Section 16.6 of this Act, or any distribution that, within 60 days after such distribution, is transferred to an ABLE account of the designated beneficiary or a member of the family of the designated beneficiary to the extent that the distribution, when added to all other contributions made to the ABLE account for the taxable year, does not exceed the limitation under Section 529A(b) of the Internal Revenue Code.

"Qualified expenses" means all of the following:

(1) Tuition and fees at a qualified school, public school, or other participating entity.

(2) Fees for:

(A) national norm referenced or criterion referenced examinations;

(B) Advanced Placement examinations, Cambridge International courses, International Baccalaureate courses, or College-Level Examination Program examinations; or

(C) statewide assessments associated with industry recognized credentials.

(3) Educational services for a student with a disability.

(4) Payments associated with the use of paraprofessional or educational aides.

(5) Services contracted for and provided by a school district, charter school, or other school, including:

(A) individual classes;

(B) extracurricular activities or programs; or

(C) additional programs, resources, or staffing defined in the student's education plan.

(6) Occupational therapy for a student with a disability, provided in accordance with a student's individualized education program or Section 504 plan under the federal Rehabilitation Act of 1973.

(7) Fees for transportation paid to a fee-for-service transportation provider for a student to travel to and from an approved special education service provider.

(8) Tuition and fees to attend training programs and camps that have a focus on:

(A) vocational skills;

(B) academic skills;

(C) life skills;

(D) independence; or

(E) soft job skills that are character traits and interpersonal skills that characterize a person's relationships with other people.

(9) Additional services and therapies prescribed by a student's treating physician in accordance with generally accepted standards of care to improve outcomes for the student in addition to any services currently being provided by the school, insurance, or the Medicaid program.

(10) Expenses to enroll in and attend sequences, courses, apprenticeships, and programs of study or career coaching and navigation services, postsecondary education and training, transportation and equipment, certification and credentialing examinations, and any other expenses approved by the State Treasurer.

(11) Fees for the management of the account.

(b) The State Treasurer may establish and administer the Education Scholarship Account as a qualified tuition program under Section 529 of the Internal Revenue Code. The Account may consist of one or more college savings programs. The State Treasurer, in administering the Education Scholarship Account, may: (1) receive, hold, and invest moneys paid into the Account; and (2) perform any other action he or she deems necessary to administer the Account, including any other actions necessary to ensure that the Account operates as a qualified tuition program in accordance with Section 529 of the Internal Revenue Code.

(c) The State Treasurer may delegate duties related to the Education Scholarship Account to one or more contractors. The contributions deposited in the Account, and any earnings thereon, shall not constitute property of the State or be commingled with State funds and the State shall have no claim to or against, or interest in, such funds, provided that the fees collected by the State Treasurer in accordance with this Act, scholarship programs administered by the State Treasurer, and seed funds deposited by the State Treasurer under Section 16.8 of the Act are State funds.

(d) The State Treasurer shall provide a separate accounting for each designated beneficiary. The separate accounting shall be provided to the account owner of the account for the designated beneficiary at least annually and shall show the account balance, the investment in the account, the investment earnings, and the distributions from the account.

(e) The State Treasurer may permit persons, including trustees of trusts and custodians under a Uniform Transfers to Minors Act or Uniform Gifts to Minors Act account, and certain legal entities to be account owners as part of a scholarship program, provided that: (1) an individual, trustee, or custodian must have a valid social security number or taxpayer identification number, be at least 18 years of age, and have a valid United States street address; and (2) a legal entity must have a valid taxpayer identification number and a valid United States street address. In-state and out-of-state persons, trustees, custodians, and legal entities may be account owners and donors, and both in-state and out-of-state individuals may be designated beneficiaries in the Education Scholarship Account.

(f) Any fees, costs, and expenses, including investment fees and expenses and payments to third parties, related to the Education Scholarship Account, shall be paid from the assets of the Education Scholarship Account. The State Treasurer shall establish fees to be imposed on accounts to cover such fees, costs, and expenses, to the extent not paid directly out of the investments of the Education Scholarship Account, and to maintain an adequate reserve fund in line with industry standards for government operated funds. The Treasurer must use his or her best efforts to keep these fees as low as possible and consistent with administration of high quality competitive programs.

(g) To enhance the safety and liquidity of the Education Scholarship Account, to ensure the diversification of the investment portfolio of the Education Scholarship Account, and in an effort to keep investment dollars in the State of Illinois, the State Treasurer may make a percentage of each account available for investment in participating financial institutions doing business in the State.

(h) The Treasurer shall develop, publish, and implement an investment policy covering the investment of the moneys in each of the programs in the Education Scholarship Account. The policy shall be published each year as part of the audit of the Education Scholarship Account by the Auditor General, which shall be distributed to all account owners in such program. The Treasurer shall notify all account owners in such program in writing, and the Treasurer shall publish, in a newspaper of general circulation in both Chicago and Springfield, any changes to the previously published investment policy at least 30 calendar days before implementing the policy. Any investment policy adopted by the Treasurer shall be reviewed and updated if necessary within 90 days following the date that the State Treasurer takes office.

(i) An account owner may, directly or indirectly, direct the investment of his or her account only as provided in Section 529(b)(4) of the Internal Revenue Code. Donors and designated beneficiaries, in those capacities, may not, directly or indirectly, direct the investment of an account.

(j) Distributions from an account in the Education Scholarship Account may be used for the designated beneficiary's qualified expenses, and if not used in that manner, may be considered a nonqualified withdrawal. Funds contained in a Education Scholarship Account account may be rolled over into an eligible ABLE account, as defined in Section 16.6 of this Act, or another qualified tuition program, to the extent permitted by Section 529 of the Internal Revenue Code.

Distributions made from the Education Scholarship Account may be made directly to an educational institution, directly to a vendor, in the form of a check payable to both the designated beneficiary and the institution or vendor, directly to the designated beneficiary or account owner, or in any other manner that is permissible under Section 529 of the Internal Revenue Code.

(k) Contributions to the Education Scholarship Account shall be as follows:

(1) Contributions to an account in the Education Scholarship Account may be made only in cash.

(2) The Treasurer shall limit the contributions that may be made to the Education Scholarship Account on behalf of a designated beneficiary, as required under Section 529 of the Internal Revenue Code, to prevent contributions for the benefit of a designated beneficiary in excess of those necessary to provide for the qualified expenses of the designated beneficiary. The Account shall not permit any additional contributions to an account as soon as the sum of the aggregate balance in all accounts in the Account for the designated beneficiary reaches the specified balance limit established from time to time by the Treasurer.

(l) The Treasurer and the State Board of Education shall each cooperate in providing each other with account information, as necessary, to prevent contributions in excess of those necessary to provide for the qualified expenses of the designated beneficiary, as described in subsection (j).

The Treasurer shall work with the State Board of Education to coordinate the marketing of the Education Scholarship Account and the Illinois Prepaid Tuition Program when considered beneficial by the Treasurer and the State Superintendent of Education.

(m) No interest in the program, or any portion thereof, may be used as security for a loan. Moneys held in an account invested in the Education Scholarship Account shall be exempt from all claims of the creditors of the account owner, donor, or designated beneficiary of that account, except for the non-exempt Education Scholarship Account transfers to or from the account as defined under subsection (j) of Section 12-1001 of the Code of Civil Procedure.

(n) The assets of the Education Scholarship Account and its income and operation shall be exempt from all taxation by the State of Illinois and any of its subdivisions. The accrued earnings on investments in the Account once disbursed on behalf of a designated beneficiary shall be similarly exempt from all taxation by the State of Illinois and its subdivisions, so long as they are used for qualified expenses. Contributions to a Education Scholarship Account account during the taxable year may be deducted from adjusted gross income as provided in Section 203 of the Illinois Income Tax Act. The provisions of this paragraph are exempt from Section 250 of the Illinois Income Tax Act.

(o) The Treasurer shall adopt rules he or she considers necessary for the efficient administration of the Education Scholarship Account. The rules shall provide whatever additional parameters and restrictions are necessary to ensure that the Education Scholarship Account meets all the requirements for a qualified tuition program under Section 529 of the Internal Revenue Code.

Notice of any proposed amendments to the rules and regulations shall be provided to all account owners prior to adoption.

(p) The State Treasurer shall give bond with at least one surety, payable to and for the benefit of the account owners in the Education Scholarship Account, in the penal sum of $10,000,000, conditioned upon the faithful discharge of his or her duties in relation to the Education Scholarship Account.