PRINTER'S NO. 4242
No. 2984 Session of 1990
INTRODUCED BY SCRIMENTI, COWELL, CAPPABIANCA, TRICH, GIGLIOTTI,
STISH, TANGRETTI AND PESCI, NOVEMBER 12, 1990
REFERRED TO COMMITTEE ON EDUCATION, NOVEMBER 12, 1990
AN ACT
1 Creating the Pennsylvania Higher Education Savings Assistance
2 Program Trust; creating a board; providing for powers,
3 participation agreements, investment funds, beneficiaries,
4 cancellation, determination of need and tax exemption; and
5 making an appropriation.
6 It is the intent of the General Assembly of the Commonwealth
7 to create the Pennsylvania Higher Education Savings Assistance
8 Program Trust with an endowment to enhance the investment return
9 of the trust. The implementation and effectuation of the
10 Pennsylvania Higher Education Savings Assistance Program Trust
11 constitutes the carrying out of a valid and vital public purpose
12 for which public funds of the Commonwealth may be expended.
13 TABLE OF CONTENTS
14 Section 1. Short title.
15 Section 2. Definitions.
16 Section 3. Savings Assistance Program Trust Bureau.
17 Section 4. Advisory board.
18 Section 5. Powers of agency.
19 Section 6. Participation agreements.
1 Section 7. Program, endowment and administrative funds.
2 Section 8. Substitution of beneficiaries.
3 Section 9. Cancellation of participation agreements.
4 Section 10. Effect of payments on determination of need
5 and eligibility for student aid.
6 Section 11. Report to Governor, General Assembly and Auditor
7 General.
8 Section 12. Tax exemption.
9 Section 13. Property rights to assets in trust.
10 Section 14. Liberal construction.
11 Section 15. Appropriation.
12 Section 16. Effective date.
13 The General Assembly of the Commonwealth of Pennsylvania
14 hereby enacts as follows:
15 Section 1. Short title.
16 This act shall be known and may be cited as the Pennsylvania
17 Higher Education Savings Assistance Program Trust Act.
18 Section 2. Definitions.
19 The following words and phrases when used in this act shall
20 have the meanings given to them in this section unless the
21 context clearly indicates otherwise:
22 "Administrative fund." The funds used to administer the
23 Pennsylvania Higher Education Savings Assistance Program Trust.
24 "Agency." The Pennsylvania Higher Education Assistance
25 Agency established by the act of August 7, 1963 (P.L.549,
26 No.290), referred to as the Pennsylvania Higher Education
27 Assistance Agency Act.
28 "Beneficiary." A person designated by a participation
29 agreement to benefit from payments for higher education costs at
30 an institution of higher education.
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1 "Board." The board of directors of the Pennsylvania Higher
2 Education Savings Assistance Program Trust.
3 "Bureau." The Savings Assistance Program Trust Bureau
4 created within the Pennsylvania Higher Education Assistance
5 Agency for the purpose of carrying out the administrative
6 function of this act.
7 "Endowment fund." The endowment fund as established in this
8 act which shall be held as a separate fund within the
9 Pennsylvania Higher Education Savings Assistance Program Trust.
10 "Higher education costs." The certified costs of tuition,
11 fees, room and board, or any of the foregoing, for attendance at
12 an institution of higher education.
13 "Institution of higher education." A two-year or four-year
14 public or regionally accredited private or nonprofit college,
15 university or vocational-technical school.
16 "Lawful investment." Any of those investments described in
17 either 24 Pa.C.S. § 8521 (relating to management of fund and
18 accounts) or 71 Pa.C.S. § 5931 (relating to management of fund
19 and accounts).
20 "Participant." An individual, firm or corporation or a legal
21 representative of any of the foregoing who has entered into a
22 participation agreement pursuant to this act for the advance
23 payment of higher education costs on behalf of a beneficiary.
24 "Participation agreement." An agreement between a
25 participant and the Pennsylvania Higher Education Savings
26 Assistance Program Trust pursuant to and conforming with the
27 requirements of this act.
28 "Program administrator." The administrator of the
29 Pennsylvania Higher Education Savings Assistance Program Trust
30 appointed by the Pennsylvania Higher Education Assistance Agency
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1 to administer and manage the trust.
2 "Program fund." The Pennsylvania Higher Education Savings
3 Assistance Program Fund established by this act which shall be
4 held as a separate fund within the Pennsylvania Higher Education
5 Savings Assistance Program Trust.
6 "Trust." The Pennsylvania Higher Education Savings
7 Assistance Program Trust created by this act.
8 "Tuition." The quarterly or semester charges imposed to
9 attend an institution of higher education and required as a
10 condition of enrollment.
11 "Vested participation agreement." A participation agreement
12 which has been in full force and effect during the vestment
13 period without default.
14 "Vestment period." Eight continuous years of residency in
15 this Commonwealth while participating in the Pennsylvania Higher
16 Education Savings Assistance Program Trust.
17 Section 3. Savings Assistance Program Trust Bureau.
18 The executive director of the agency shall establish a
19 bureau, which shall be known as the Savings Assistance Program
20 Trust Bureau, for the purpose of establishing and administering
21 the Pennsylvania Higher Education Savings Assistance Program
22 Trust, which shall provide for a savings program for a
23 beneficiary attending a higher education institution.
24 Section 4. Advisory board.
25 (a) Creation.--There is hereby created a Pennsylvania Higher
26 Education Savings Assistance Program Trust Advisory Board. The
27 board shall be composed of the chairman of the board of
28 directors of the Pennsylvania Higher Education Assistance
29 Agency, the Commissioner of Higher Education within the
30 Department of Education, the chairman of the Council of Higher
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1 Education and the chancellor of the State System of Higher
2 Education, all of whom shall be ex officio members. There also
3 shall be 12 other members of the board. Of these 12 other
4 members, three shall be appointed by the President pro tempore
5 of the Senate, three shall be appointed by the Speaker of the
6 House of Representatives and six shall be appointed by the
7 Governor. Of the three members appointed by the President pro
8 tempore, one must be a member of the Senate and one must be
9 recommended by the Minority Leader of the Senate. Of the three
10 members appointed by the Speaker of the House of
11 Representatives, one must be a member of the House of
12 Representatives and one must be recommended by the Minority
13 Leader of the House of Representatives. The remaining members of
14 the board appointed by the President pro tempore of the Senate
15 and the Speaker of the House of Representatives shall have
16 knowledge, skill and expertise in financial affairs. Of the six
17 members appointed by the Governor, one shall be president of a
18 State-related institution, one shall be the president of one of
19 the institutions created pursuant to the act of August 24, 1963
20 (P.L.1132, No.484), known as the Community College Act of 1963,
21 and two shall be presidents of private or independent four-year,
22 degree-granting colleges or universities located within this
23 Commonwealth.
24 (b) Terms.--Board members appointed by the President pro
25 tempore of the Senate, the Speaker of the House of
26 Representatives and the Governor shall be appointed for terms of
27 four years each. Vacancies shall be filled for the unexpired
28 terms of appointed members of the board in the same manner as
29 original appointments.
30 (c) Organizational meeting.--The Commissioner of Higher
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1 Education shall call an organizational meeting of the board at
2 which time a chairman shall be selected from among the members.
3 Meetings of the board shall be held at least quarterly or at the
4 call of the chairman.
5 (d) Duties.--The board shall consider, study and review the
6 work of the bureau, shall advise the agency on request and shall
7 make recommendations on its own initiative for the improvement
8 of the trust. The board shall report annually to the Governor
9 and the General Assembly and make such interim reports as are
10 deemed advisable.
11 (e) Employees.--The agency shall have the power and duty to
12 provide the board with such experts, stenographers and
13 assistants as may be deemed necessary to carry out the work of
14 the board. In addition, the board may enlist such voluntary
15 assistance as may be available from citizens, research
16 organizations and other agencies in this Commonwealth and
17 elsewhere.
18 Section 5. Powers of agency.
19 In addition to the powers granted by other provisions of this
20 act, the agency shall have the powers necessary or convenient to
21 carry out and effectuate the purposes, objectives and provisions
22 of this act, including, but not limited to, the power to:
23 (1) Administer the trust.
24 (2) Enter into participation agreements with
25 participants.
26 (3) Make and enter into contracts necessary for the
27 administration of the trust to carry out the provisions of
28 this act.
29 (4) Make payments to institution of higher education
30 pursuant to participation agreements on behalf of
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1 beneficiaries.
2 (5) Contract for goods and services, and engage and
3 employ personnel, including, but not limited to, the services
4 of private consultants, actuaries, managers, legal counsel
5 and auditors for rendering professional, managerial and
6 technical assistance and advice, if necessary for prudent
7 management.
8 (6) Solicit and accept gifts, grants, loans and other
9 aid from any person, corporation or other entity, or from
10 Federal, State or local government or any agency thereof and
11 participate in any other way in any Federal, State or local
12 government program, if necessary for prudent management.
13 (7) Charge, impose or collect administrative fees and
14 charges in connection with any transaction and provide for
15 reasonable penalties including penalties for delinquent
16 payments in respect of participant agreements.
17 (8) Make refunds to participants upon the termination of
18 participation agreements pursuant to the provision,
19 limitations and restrictions set forth in this act.
20 (9) Borrow money, with the approval of the Governor, to
21 the extent permitted by Federal law, by making and issuing
22 notes, bonds and other evidences of indebtedness, as may from
23 time to time be determined necessary.
24 (10) Invest moneys of the trust and engage investment
25 advisors to assist in the investment of trust assets,
26 including the program fund and the endowment fund, in any
27 lawful investment determined by the board, notwithstanding
28 any other statutory limitations which are specifically
29 determined to be inapplicable to the trust.
30 (11) Appoint a program administrator and determine the
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1 duties of the program administrator and other staff as
2 necessary and fix their compensation.
3 (12) Make provisions for the payment of costs of
4 administration and operation of the trust.
5 (13) Carry out the duties and obligations of the trust
6 pursuant to this act and have any and all other powers as may
7 be reasonably necessary for the effectuation of the purposes
8 of the trust and this act.
9 (14) Carry out studies and projections in order to
10 advise participants regarding present and estimated future
11 higher education costs and levels of financial participation
12 in the trust required in order to enable participants to
13 achieve their educational funding objectives.
14 (15) Consider means whereby a participant may have
15 installment payments deducted from his salary.
16 (16) Promulgate rules and regulations necessary or
17 convenient to accomplish the purpose of this act.
18 (17) Promote, advertise and otherwise make aware to the
19 citizens of this Commonwealth the availability and benefits
20 of the program and the importance of preparing for the future
21 costs of higher education.
22 Section 6. Participation agreements.
23 The agency shall have the authority to enter into
24 participation agreements with participants on behalf of
25 beneficiaries pursuant to all of the following terms and
26 agreements:
27 (1) Each participation agreement shall require a
28 participant to agree to invest a specific amount of money in
29 the trust for a specific period of time for the benefit of a
30 specific beneficiary. Participation agreements may be amended
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1 to provide for adjusted levels of payments based upon changed
2 circumstances or changes in educational plans and may contain
3 penalties for failure to make payments when scheduled.
4 (2) Notwithstanding the provisions of paragraph (1),
5 participants may elect to enter into a lump sum payment
6 participation agreement in connection with which a single,
7 lump sum payment is made by the participant for the benefit
8 of a beneficiary.
9 (3) The participation agreement shall determine the
10 minimum rate of interest which shall be borne by the
11 investment made by the participant or in lieu thereof shall
12 provide for alternative procedures or contain a specific
13 formula for the calculation of such rate of interest from the
14 date of deposit of moneys by the participant to the scheduled
15 date of maturity of the participation agreement.
16 (4) As a term of the participation agreement,
17 participants may elect to have the agency annually provide
18 such information that will compare the projected estimated
19 earnings of the participant's individual account to the
20 projected estimated tuition cost of a particular institution
21 or institutions of higher education chosen at the time of the
22 participation agreement. The agency shall also provide the
23 amount of savings adjustments required to meet the projected
24 estimated cost of the designated institution or institutions.
25 (5) The execution of a participation agreement by the
26 trust shall not guarantee in any way that higher education
27 costs will be equal to projections and estimates provided by
28 the trust or that the beneficiary named in any participation
29 agreement will:
30 (i) be admitted to an institution of higher
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1 education;
2 (ii) if admitted, be determined a resident for
3 tuition purposes by the institution of higher education,
4 unless the participation is vested;
5 (iii) be allowed to continue attendance at the
6 institution of higher education following admission; or
7 (iv) graduate from the institution of higher
8 education.
9 (6) Beneficiaries may be changed as permitted by the
10 rules and regulations of the board upon written request of
11 the participant prior to the date of admission of any
12 beneficiary under a participation agreement by an institution
13 of higher education.
14 (7) Participation agreements shall be freely amended
15 throughout their terms in order to enable participants to
16 increase or decrease the level of participation, change the
17 designation of beneficiaries and carry out similar matters.
18 (8) Each participation agreement shall provide that for
19 vested participation agreements, the beneficiary shall be
20 considered a resident of this Commonwealth for tuition
21 purposes if the beneficiary enrolls in an institution of
22 higher education in this Commonwealth prior to enrollment in
23 any other educational institution.
24 (9) Each participation agreement shall provide that the
25 participation agreement may be canceled upon the terms and
26 conditions and upon payment of the fees and costs set forth
27 and contained in the rules and regulations promulgated by the
28 board.
29 Section 7. Program, endowment and administrative funds.
30 (a) Segregated funds.--The agency shall segregate moneys
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1 received by the trust into three funds, which shall be
2 identified as the program fund, the endowment fund and the
3 administrative fund. Moneys received into the program fund and
4 the endowment fund may be transferred to the administrative fund
5 for the purpose of paying operating costs associated with
6 administering the trust as required by this act. All moneys paid
7 by participants in connection with participation agreements
8 shall be deposited as received into the program fund and shall
9 be promptly invested and accounted for separately. All moneys
10 received by the trust from the proceeds of gifts and other
11 endowments for the purposes of the trust shall be deposited as
12 received into the endowment fund, which shall be promptly
13 invested and accounted for separately. The program fund and the
14 endowment fund shall be separately administered. Any gifts,
15 grants or donations made by any governmental unit or any person,
16 firm, partnership or corporation to the trust for deposit to the
17 endowment fund shall be a grant, gift or donation to the
18 Commonwealth of Pennsylvania for the accomplishment of a valid
19 public purpose and shall not be included in the income of the
20 donor for Pennsylvania tax purposes.
21 (b) Gifts and grants.--Any person, firm or corporation may
22 make gifts and grants to the endowment fund and require as a
23 condition that the income from the gifts and grants shall be
24 applied only to the benefit of a particular group or class of
25 beneficiaries. Such special payments shall not affect the rights
26 of all beneficiaries to share in the general unrestricted income
27 of the endowment fund subject to subsection (c) on a basis of
28 pro rata equality with other beneficiaries. Notwithstanding any
29 provisions in any such gifts or grants limiting them to a
30 specific class of beneficiaries, such gifts or grants shall be
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1 irrevocable.
2 (c) Pro rata interest.--Each beneficiary under a
3 participation agreement shall receive a pro rata interest in the
4 investment income derived by the endowment fund in any year in
5 which moneys are paid under such participation agreement to
6 institutions of higher education in this Commonwealth for higher
7 education costs. The amount received shall be in the ratio that
8 the principal amount paid by the participant under such
9 participation agreement and interest earned to date thereon
10 bears to the principal amount of all moneys, funds and
11 securities then held in the program fund. At the time any
12 payments or disbursements for higher education costs are due
13 from the trust to any institution of higher education in this
14 Commonwealth under a participation agreement, the trust shall
15 also pay from endowment fund income such proportionate amount,
16 which shall be transferred directly to the institution of higher
17 education in this Commonwealth simultaneously with the payment
18 made from the program fund and shall be used for payment of
19 higher education costs of the beneficiary. Moneys accrued by
20 participants in the program fund of the trust may be used for
21 payments to any institution of higher education. However, no
22 rights to any moneys derived from the endowment fund shall exist
23 if moneys payable under the participation agreement are paid to
24 an education institution which is not an institution of higher
25 education in this Commonwealth as defined by this act.
26 Section 8. Substitution of beneficiaries.
27 Participants shall be permitted to substitute beneficiaries
28 at any time. In the event the substitute beneficiary shall be
29 eligible for enrollment at an institution of higher education
30 upon a date earlier than the original beneficiary, the trust
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1 shall either require the payment by the participant of a fee or
2 cost actuarially determined to place the substituted beneficiary
3 on a basis of actuarial parity with the original beneficiary or
4 pay benefits at a reduced rate equal to the rate of return
5 generated by the participation agreement and the endowment fund
6 during such lesser time period.
7 Section 9. Cancellation of participation agreements.
8 (a) General rule.--Any participant may cancel a
9 participation agreement at will. In the event the participation
10 agreement is canceled by a participant prior to the expiration
11 of two years from the date of original execution of the
12 participation agreement, there shall be refunded to the
13 participant 100% of the principal amount of all contributions
14 made by the participant with no payment of interest thereon, and
15 a participant shall also be required to pay a reasonable
16 administrative refund fee, which shall be sufficient to
17 reasonably compensate the trust for its administrative costs
18 incident to the participation agreement. After a participation
19 agreement has been in effect for two years, participants shall
20 be entitled to the return upon cancellation thereof of the
21 principal amount of all contributions made by participants plus
22 interest on such contributions at the actual rate of interest
23 applicable thereto upon the payment of a reasonable
24 administrative refund fee to be levied by the trust, which shall
25 be sufficient to reasonably compensate the trust for its
26 administrative costs incident to the participation agreement.
27 (b) Refund fee.--Upon the occurrence of any of the following
28 circumstances, no reasonable administration refund fee shall be
29 levied by the trust in the event of termination of a
30 participation agreement:
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1 (1) Death of a beneficiary.
2 (2) Failure of the beneficiary to be admitted to an
3 institution of higher education after filing a proper
4 application for admission thereto.
5 (3) Permanent disability or mental incapacity of the
6 beneficiary.
7 (4) Cancellation of a vested participation agreement.
8 In the event of cancellation of a participation agreement for
9 any of these causes, the participant shall be entitled to
10 receive the principal amount of all payments made by the
11 participant under the participation agreement and the actual
12 interest earned on the payments.
13 Section 10. Effect of payments on determination of need and
14 eligibility for student aid.
15 No student loan program, student grant program or other
16 program administered by any agency of the Commonwealth, except
17 as may be otherwise provided by Federal law or the provisions of
18 any specific grant applicable thereto, shall take into account
19 and consider amounts available for the payment of higher
20 education costs pursuant to the trust in determining need and
21 eligibility for student aid.
22 Section 11. Report to Governor, General Assembly and Auditor
23 General.
24 (a) Annual report.--The program administrator, on behalf of
25 the trust, shall submit annually, by October 1, a complete
26 report of its operations for the preceding calendar year to the
27 Governor, the General Assembly and the Auditor General. The
28 financial information required by this section shall be verified
29 by the Auditor General.
30 (b) Financial statement.--The report shall include a
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1 detailed financial statement of the trust and the expenses
2 incurred so that the cost of the trust can be determined and
3 identified. The report shall include, but not be limited to, the
4 following information concerning the trust:
5 (1) Assets and liabilities.
6 (2) Income and expenditures.
7 (3) Direct and indirect costs attributable to the use of
8 outside consultants, independent contractors and any other
9 persons who are not State employees.
10 (c) Additional contents.--The report shall also contain the
11 following information:
12 (1) The actuarial report for the preceding calendar year
13 and any other studies or evaluations prepared in the
14 preceding year.
15 (2) A description of the benefits provided by the trust
16 and the number of participants in the trust.
17 (3) Any other information which is relevant in order to
18 make a full, fair and effective disclosure of the operations
19 of the trust.
20 (d) Evaluation.--The trust shall have prepared every year,
21 by a competent independent auditor familiar with trust funds, a
22 report showing a complete evaluation of the trust and the
23 adequacy of the rates of investments, which report shall contain
24 such recommendations as the auditor considers advisable. The
25 trust may at any time request the auditor to make any studies or
26 evaluations to determine the adequacy of the rates of
27 contribution, and such rates may be adjusted by the trust, as
28 recommended by the auditor, effective as of the first of any
29 fiscal year thereafter.
30 Section 12. Tax exemption.
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1 The property of the trust and its income from operations
2 shall be exempt from all taxation by the Commonwealth or any of
3 its political subdivisions. Interest earned on moneys paid by
4 any participant shall not be subject to Pennsylvania income tax
5 by either a participant or any beneficiary of a participation
6 agreement, the purposes for which the interest was accrued being
7 deemed and declared to be entirely public in nature.
8 Section 13. Property rights to assets in trust.
9 The assets of the trust, including the program fund and the
10 endowment fund, shall at all times be preserved, invested and
11 expended solely and only for the purposes of the trust and shall
12 be held in trust for the participants and beneficiaries and no
13 property rights therein shall exist in favor of the
14 Commonwealth. The assets shall not be transferred or used by the
15 Commonwealth for any purposes other than the purposes of the
16 trust.
17 Section 14. Liberal construction.
18 This act shall be construed liberally in order to effectuate
19 its legislative intent. The purposes of this act with respect to
20 powers granted shall be broadly interpreted to effectuate such
21 intent and purposes and not as to any limitation of powers.
22 Section 15. Appropriation.
23 The sum of $200,000 is hereby appropriated to the
24 Pennsylvania Higher Education Assistance Agency for the initial
25 planning, organization and administration of the Pennsylvania
26 Higher Education Saving Assistance Program Trust. This
27 appropriation is a continuing appropriation and will continue
28 until sufficient participant involvement in the program allows
29 the department to transfer operating costs from the earnings of
30 the trust.
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1 Section 16. Effective date.
2 This act shall take effect immediately.
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