PRINTER'S NO. 871
No. 8 Session of 1999
INTRODUCED BY JUBELIRER, SALVATORE, EARLL, WHITE, BRIGHTBILL,
HOLL, LEMMOND, MUSTO, COSTA, PUNT, DENT, MURPHY, CONTI,
STOUT, WAGNER, TARTAGLIONE, TILGHMAN, KUKOVICH, HELFRICK,
O'PAKE, THOMPSON, ROBBINS, GERLACH, SCHWARTZ, MELLOW AND
WENGER, APRIL 13, 1999
REFERRED TO EDUCATION, APRIL 13, 1999
AN ACT
1 Amending the act of April 3, 1992 (P.L.28, No.11), entitled "An
2 act providing for the advance purchase of tuition at certain
3 institutions of higher education; establishing the Tuition
4 Account Program Bureau within the Treasury Department and
5 providing duties for the Treasury Department; establishing
6 the tuition payment fund; providing for tuition account
7 payment contracts; providing for the issuance and sale of
8 certain bonds; and further providing for duties of the
9 Pennsylvania Higher Education Assistance Agency," further
10 providing for the tuition account program; and establishing
11 scholarship programs.
12 The General Assembly of the Commonwealth of Pennsylvania
13 hereby enacts as follows:
14 Section 1. Sections 301(5), 302, 303, 304(c), 305, 306(a)
15 and (b), 307(b), 308, 309, 310, 311, 312, 313 and 316 of the act
16 of April 3, 1992 (P.L.28, No.11), known as the Tuition Account
17 Program and College Savings Bond Act, are amended to read:
18 Section 301. Declaration of policy.
19 The General Assembly finds and declares as follows:
20 * * *
21 (5) The purposes of this chapter are to:
1 (i) Provide wide and affordable access to
2 institutions of higher education, both public and
3 private, for the residents of this Commonwealth.
4 (ii) Encourage attendance at institutions of higher
5 education, both public and private, and help individuals
6 plan for educational expenses.
7 (iii) Provide a program for the advance purchase of
8 tuition as both a means and an incentive for the citizens
9 of this Commonwealth to provide for future higher
10 education expenses.
11 (iv) Provide to the citizens of this Commonwealth a
12 means of prepurchasing tuition to be used for
13 postsecondary education that provides them with the
14 advantages of a prepaid tuition program through a
15 "qualified State tuition program" as defined by section
16 529 of the Internal Revenue Code of 1986 (Public Law 99-
17 514, 26 U.S.C. § 529).
18 Section 302. Definitions.
19 The following words and phrases when used in this chapter
20 shall have the meanings given to them in this section unless the
21 context clearly indicates otherwise:
22 "Academic period." A semester, trimester or comparable
23 institutional period into which an eligible educational
24 institution divides its academic year.
25 "Academic year." A 12-month period commencing on or after
26 August 1 of the calendar year.
27 "Beneficiary." A person who meets the eligibility criteria
28 established by this chapter and by the department and on whose
29 behalf a purchaser enters into a tuition account payment
30 contract.
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1 "Board." The Tuition Account Program Advisory Board.
2 "Department." The Treasury Department of the Commonwealth.
3 "Eligible educational institution." A college, university,
4 vocational or other postsecondary educational institution as
5 defined by section 529 of the Internal Revenue Code of 1986
6 (Public Law 99-514, 26 U.S.C. § 529).
7 "Fund." The Tuition [Payment] Account Program Fund.
8 "Lawful investment." Any of those investments described in
9 either 24 Pa.C.S. § 8521 (relating to management of fund and
10 accounts) or 71 Pa.C.S. § 5931 (relating to management of fund
11 and accounts).
12 "Net earnings rate of the fund." The percentage return of
13 the investment of fund assets after adjusting for any taxes and
14 operating expenses.
15 "Other educational expense credits." Tuition credits that
16 are converted for payment of qualified higher education expenses
17 other than tuition, as provided in section 309(h).
18 ["Participating institution." Any accredited, degree-
19 granting college or university which is required to participate
20 in the tuition account program under section 308.]
21 "Private institution." Any private or out-of-State public
22 institution that is an eligible educational institution.
23 "Public institution." Any public eligible educational
24 institution which is required to participate in the tuition
25 account program under section 308.
26 "Purchaser." A person, including a natural person,
27 corporation, association, partnership or other legal entity, who
28 enters into a tuition account payment contract.
29 "Qualified higher education expenses." Expenses, as defined
30 by section 529 of the Internal Revenue Code of 1986 (Public Law
19990S0008B0871 - 3 -
1 99-514, 26 U.S.C. § 529).
2 "Tuition." The [total of all fees and charges] charge for an
3 academic credit or the credits required for attendance at an
4 [institution of higher education] eligible educational
5 institution for a full-time, undergraduate academic [year,
6 excluding charges for room and board] period.
7 "Tuition account payment contract." A contract entered into
8 by a purchaser and the department on behalf of the Commonwealth
9 to provide for the advance purchase of tuition credits for a
10 beneficiary attending [a participating] an eligible educational
11 institution.
12 "Tuition credits." Credits as determined in section 309(c).
13 "Tuition credit purchase prices." The price set by the
14 Treasury Department annually for each tuition level for the
15 purchase of one tuition credit.
16 "Tuition level." The purchaser's designation of the public
17 or private institution or an average established pursuant to
18 section 309(b), to which payment made pursuant to the tuition
19 account payment contract will be applied to purchase tuition
20 credits.
21 "Tuition shortfall." The [positive] difference between the
22 [tuition for the number of tuition credits used at a
23 participating institution accepting a beneficiary for enrollment
24 and the tuition payment as determined in section 309(g).] amount
25 of the payment authorized by the purchaser pursuant to section
26 309(d)(2) or (e)(2) and the available portion of the value of
27 the account.
28 "Value of the account." An amount calculated for an
29 individual tuition account payment contract by compounding
30 annually each separate payment for purchase of tuition credits
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1 from the time of payment to the date of calculation at the
2 actual annual net earnings rate of the Tuition Account Program
3 Fund.
4 Section 303. Tuition Account Program Bureau.
5 The State Treasurer is directed to establish a bureau within
6 the Treasury Department, which shall be known as the Tuition
7 Account Program Bureau, for the purpose of establishing and
8 administering the tuition account program. The program shall
9 provide for the advance purchase of tuition credits for a
10 beneficiary attending [a participating] an eligible educational
11 institution.
12 Section 304. Tuition Account Program Advisory Board.
13 * * *
14 (c) Organizational meeting.--The Commissioner of Higher
15 Education shall call the organizational meeting of the board, at
16 which time a [chairman] chairperson shall be selected from among
17 the members. If a vacancy in the office of chairperson occurs,
18 such vacancy shall be filled by a selection from among the
19 members. Meetings of the board shall be held at least quarterly
20 or at the call of the [chairman] chairperson.
21 * * *
22 Section 305. Powers of department.
23 In addition to the powers granted by other provisions of this
24 chapter, the department shall have the powers necessary or
25 convenient to carry out this chapter, including, but not limited
26 to, the power to:
27 (1) Administer the tuition account program and the fund.
28 (2) Enter into tuition account payment contracts with
29 purchasers.
30 (3) Contract and make any agreements or arrangements
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1 necessary with eligible educational institutions [of higher
2 education].
3 (4) Pay directly to an eligible educational institution,
4 a purchaser, a beneficiary or a third party authorized by the
5 purchaser, upon the receipt of appropriate documentation, the
6 funds which the department is obligated to [transfer to the
7 institution] pay upon a beneficiary's use of tuition credits.
8 (5) Contract for goods and services, and engage and
9 employ personnel, including, but not limited to, the services
10 of private consultants, actuaries, managers, legal counsel
11 and auditors for rendering professional, managerial and
12 technical assistance and advice.
13 (6) Solicit and accept gifts, grants, loans and other
14 aid from any person, corporation or other entity or from
15 Federal, State or local government and participate in any
16 Federal, State or local government program, if necessary for
17 prudent management or the establishment and administration of
18 a scholarship program.
19 (7) Charge and collect administrative fees and charges
20 in connection with any transaction, including continued
21 participation in the tuition account program.
22 (8) Terminate tuition accounts and make refunds.
23 (9) Contract for insurance, letters of credit and
24 collateral agreements.
25 (10) Restrict the number of participants in the program.
26 (11) Adjust the terms of [subsequent] tuition account
27 payment contracts.
28 (12) Solicit answers from the appropriate Federal
29 agencies regarding the application of security or other
30 Federal laws to the program.
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1 (13) Limit the times and dates during which tuition
2 account payment contracts may be sold.
3 (14) Consider means whereby a purchaser may have
4 installment payments deducted from salary.
5 (15) Promulgate regulations.
6 (16) Notwithstanding any other provision of this act,
7 administer the tuition account program in such manner as to
8 ensure and maintain its status as a "qualified State tuition
9 program" as defined in section 529 of the Internal Revenue
10 Code of 1986 (Public Law, 26 U.S.C. § 529).
11 Section 306. Tuition [Payment] Account Program Fund.
12 (a) Establishment.--There is established in the State
13 Treasury a special fund to be known as the Tuition [Payment]
14 Account Program Fund. This fund shall be invested in accordance
15 with this chapter. All money in the fund is hereby appropriated
16 to the department on a continuing basis to carry out the
17 provisions of this chapter.
18 (b) Administration.--
19 (1) The assets of the fund shall be preserved, invested
20 and expended solely pursuant to and for the purposes set
21 forth in this chapter.
22 (2) The department shall obtain appropriate actuarial
23 assistance to establish, maintain and certify that the fund
24 is sufficient to defray the tuition account program's
25 obligations and shall annually evaluate, or cause to be
26 evaluated, the actuarial soundness of the fund. If the
27 department finds a need for additional assets in order to
28 preserve actuarial soundness [or if the department finds that
29 actuarial soundness can be maintained with fewer assets], it
30 may adjust the [purchase prices of the] tuition [credits
19990S0008B0871 - 7 -
1 calculated under section 309(c)(3)] credit purchase prices to
2 ensure such soundness. If the department finds that actuarial
3 soundness can be maintained with fewer assets, it may adjust
4 the tuition credit purchase prices or distribute surplus
5 assets in excess of those needed to maintain the actuarial
6 soundness of the fund as specified in paragraph (2.1)
7 (2.1) (i) Annually, after the department's fiscal year
8 has ended, the department shall determine whether the
9 fund has been actuarially certified as being sufficient
10 to defray the tuition account program's obligations and
11 whether the actuarial soundness of the fund, as
12 actuarially evaluated, can be maintained with fewer
13 assets and, if so, the dollar value of any excess surplus
14 assets. In making the determination, the department shall
15 consider the projected costs and expenses of the program,
16 including the fund, as well as any material subsequent
17 events occurring between the end of the fiscal year and
18 the date on which the determination is made.
19 (ii) If the department determines that there are
20 assets in excess of those needed to maintain actuarial
21 soundness of the fund and the assets actuarially
22 certified as sufficient to defray the costs of the
23 tuition account program, the department may, but shall
24 not be obligated to, distribute the dollar value of any
25 excess surplus assets by increasing the number of tuition
26 credits in accounts established pursuant to tuition
27 account payment contracts that have not been terminated
28 as of the date of determination.
29 (iii) Any distribution of any excess surplus assets
30 of the fund shall be made on an equitable basis as
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1 determined by the department.
2 (3) The department, in conjunction with the board, shall
3 make an annual report to the Governor and the General
4 Assembly showing the fund's condition. This report shall
5 contain the findings and recommendations of the department
6 and the board and the recommendations of any private
7 consultant under contract or volunteering services to the
8 department or board. The report shall detail actions taken or
9 needed to modify the tuition account program to insure the
10 fiscal sufficiency of the fund to meet its obligations under
11 this chapter. The report shall address the relationship
12 between existing and projected net investment returns and
13 existing and projected tuition levels and address the
14 advisability or necessity of modifying the authorized
15 investment of fund assets, the purchase price of tuition
16 credits, the amount of administrative fee or charges or the
17 amount of refunds offered upon termination of a tuition
18 account. Further, consistent with the goal of providing for
19 the maintenance of the fiscal sufficiency of the fund, this
20 report shall detail those actions taken or needed to modify
21 the tuition account program so that the fund, purchasers and
22 beneficiaries will receive favorable treatment for purposes
23 of Federal taxation.
24 * * *
25 Section 307. Investment policies and guidelines.
26 * * *
27 (b) Investment manager and trustee.--The department may
28 contract with one or more persons or other legal entities to
29 serve as investment managers and trustees to the department on
30 behalf of the tuition account program. If the department
19990S0008B0871 - 9 -
1 contracts with investment managers and trustees in order to
2 fulfill the objectives of the tuition account program, the
3 investment managers and trustees shall work with the department
4 to create an investment program, to develop investment
5 portfolios and to supervise investments and the investment
6 program selected. If the department contracts with investment
7 managers and trustees, the department may require that the
8 investment managers and trustees agree, based on actuarial
9 projections of program costs and expenses supplied by the
10 department, to meet any obligations of the department if, as a
11 result of the imprudent selection or supervision of investments
12 or the investment program by the investment managers or
13 trustees, the tuition [payment] account program fund is not
14 fiscally sufficient to enable the department to fulfill its
15 obligations under this chapter.
16 Section 308. [Participating institutions] Participation by
17 eligible educational institutions.
18 (a) Public institutions.--The following public institutions
19 of higher education shall participate in the tuition account
20 program:
21 (1) Community colleges operating under Article XIX-A of
22 the act of March 10, 1949 (P.L.30, No.14), known as the
23 Public School Code of 1949.
24 (2) Universities comprising the State System of Higher
25 Education.
26 (3) The following State-related institutions:
27 (i) The Pennsylvania State University.
28 (ii) The University of Pittsburgh.
29 (iii) Temple University.
30 (iv) Lincoln University.
19990S0008B0871 - 10 -
1 (4) Any institution which is hereafter designated as
2 "State-related" by the Commonwealth.
3 (b) Private institutions.--A private institution may enter
4 into an agreement with the department through which the
5 institution, under terms mutually agreeable to the institution
6 and the department, agrees to be a private institution that
7 purchasers may choose when designating their tuition level. The
8 terms of the agreement shall include, but not be limited to, the
9 determination of tuition credit purchase prices, terms of
10 redemption of tuition credits at the institution, conversion of
11 tuition credits purchased at other tuition levels to tuition at
12 the institution and appropriate conversion of tuition credits to
13 educational expense credits.
14 Section 309. Tuition account program.
15 (a) General description.--Each payment made pursuant to a
16 tuition account payment contract will purchase tuition credits
17 at [one of three standard tuition levels or, at the purchaser's
18 designation, at a specific participating institution.] the
19 tuition level designated by the purchaser in the tuition account
20 payment contract. All tuition credits purchased will be held in
21 a beneficiary's account and will be converted to the tuition
22 level of the institution to be attended by the beneficiary. At
23 the time of redemption, the tuition to be paid will be
24 calculated based on the tuition level designated and the
25 institution being attended as described in this section. A
26 [participating] public institution attended by a beneficiary
27 shall accept that beneficiary's tuition credits when presented.
28 [The department shall pay from the fund to the participating
29 institution the lesser of the actual tuition for the number of
30 tuition credits used or the tuition payment as specified in
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1 subsection (g).] Payments on account of tuition shortfalls shall
2 be made [to participating institutions] as provided for in
3 section 310.
4 (b) [Standard tuition] Tuition levels.--
5 (1) The department shall annually establish three
6 [standard] average tuition levels for public institutions
7 corresponding approximately to the average tuition charges
8 for that year at the Commonwealth's community colleges, at
9 universities in the State System of Higher Education and at
10 State-related universities. The department may annually
11 establish an average tuition level or levels for private
12 institutions corresponding to average tuition charges at
13 private institutions, as the department deems appropriate.
14 (2) Any purchaser may buy tuition credits at [any
15 designated standard tuition level or at the tuition rate of a
16 specific participating institution.] the tuition level
17 designated in the tuition account payment contract. With the
18 approval of the department, a purchaser may change the
19 designated tuition level.
20 (c) Tuition credits.--Tuition credits are [whole or partial
21 units related to] purchased for an academic [year] period and
22 are obtained as follows:
23 (1) [The payment for each tuition purchase] A payment
24 made pursuant to a tuition account payment contract shall be
25 divided by [either] the tuition credit purchase price at [a
26 standard] the tuition level [or the tuition at a specific
27 participating institution, as] designated by the purchaser.
28 (2) For tuition purchases during the period from
29 [August] September 1 to [July] August 31, tuition [rates]
30 credit purchase prices for the corresponding academic year
19990S0008B0871 - 12 -
1 shall be used.
2 [(3) If the department, in its discretion, determines
3 that the purchase payment for tuition credits representing a
4 unit of tuition for one academic year at a standard tuition
5 level or at a specific participating institution is to be
6 greater or less than actual tuition for the corresponding
7 year at a standard or at a specific participating
8 institution, the method of calculating tuition credits in
9 accordance with paragraphs (1) and (2) shall be adjusted
10 accordingly.
11 (4)] (3) The number of tuition credits calculated at the
12 time of purchase in accordance with paragraphs (1)[, (2) and
13 (3)] and (2) [shall] may be reduced in a manner determined by
14 the department reasonably to reflect potential investment
15 loss resulting from the time of year when the purchase is
16 made.
17 (d) Process for public institutions.--The process for
18 certifying tuition, converting tuition credits, issuing and
19 redeeming tuition credits and making tuition payments for public
20 institutions shall be as follows:
21 [(d) Certifying tuition.--](1) On or before July 31, a
22 [participating] public institution shall certify to the
23 department the tuition to be charged by that institution for
24 the academic year beginning on or after August 1 [of that
25 year and ending on or before July 31 of the following year,]
26 and, at such times as the department shall determine, each
27 [participating] public institution shall certify to the
28 department the tuition charged by that institution for the
29 current or any previous academic year.
30 [(e) Conversion of tuition credits.--Upon request of any
19990S0008B0871 - 13 -
1 purchaser or beneficiary, the department shall convert tuition
2 credits purchased at standard tuition levels to actual tuition
3 at a specific participating institution by multiplying the
4 number of tuition credits purchased each year by the ratio of
5 that academic year's standard tuition level divided by the
6 tuition for the same academic year at the designated
7 participating institution. Upon request of the purchaser or
8 beneficiary, the department, following the same procedure, shall
9 convert tuition credits purchased at the tuition rate of a
10 participating institution to the tuition at another
11 participating institution designated in the request. The sum of
12 such conversions shall be the total tuition credits applicable
13 to a specific participating institution.
14 (f)](2) [Issuance and redemption of certified tuition
15 credits.--]Upon application, the department shall issue to a
16 purchaser [or beneficiary a certified] a statement of
17 accumulated tuition credits available for the payment of [all
18 or a portion of a student's] tuition for a specific academic
19 [year at a] period at the specific public institution or the
20 public institution average tuition level designated
21 [participating institution. Any participating institution
22 which presents to the department a certified statement of
23 tuition credits for a student accepted for enrollment for a
24 specific academic year shall be paid by the department the
25 lesser of actual tuition for the number of tuition credits
26 used as established by the institution for that academic year
27 or the tuition payment for the academic year calculated as
28 specified in subsection (g).] by the purchaser. In the event
29 the purchaser decides to redeem the available tuition
30 credits, the purchaser shall notify the department of the
19990S0008B0871 - 14 -
1 institution at which the beneficiary intends to enroll. In
2 the event the institution is:
3 (i) The public institution last designated by the
4 purchaser in the tuition account payment contract as the
5 tuition level, the purchaser shall submit to the
6 department adequate documentation of enrollment, the
7 qualified higher education expenses and the number of
8 credits or dollar value of the credits that the purchaser
9 has decided to redeem. The purchaser shall authorize
10 payment of that amount to the institution, a specified
11 third party, the purchaser and/or beneficiary. Payment
12 shall be made as specified in subsection (d)(3).
13 (ii) A different public institution than that last
14 designated by the purchaser in the tuition account
15 payment contract as the tuition level, a conversion shall
16 be made pursuant to subsection (g) and the department
17 shall issue a revised statement of accumulated tuition
18 credits and their dollar value available for payment of
19 qualified higher education expenses at the newly
20 designated public institution. The purchaser shall submit
21 to the department adequate documentation of enrollment,
22 the qualified higher education expenses and the number of
23 credits or dollar value of the credits that the purchaser
24 has decided to redeem. The purchaser shall authorize
25 payment of that amount to the institution, a specified
26 third party, the purchaser and/or beneficiary. Payment
27 shall be made as specified in subsection (d)(3).
28 (iii) A private institution that has not entered
29 into an agreement with the department pursuant to section
30 308(b), the available tuition credits shall be redeemable
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1 for the payment of qualified higher education expenses at
2 the value they would have had if they had been redeemed
3 at the tuition level last designated by the purchaser in
4 the tuition account payment contract. The purchaser shall
5 submit to the department adequate documentation of
6 enrollment, the qualified higher education expenses and
7 the number of credits or dollar value of the credits that
8 the purchaser has decided to redeem. The purchaser shall
9 authorize payment of that amount to the institution, a
10 specified third party, the purchaser and/or beneficiary.
11 Payment shall be made as specified in subsection (d)(3).
12 (iv) A private institution that has entered into an
13 agreement with the department pursuant to section 308(b),
14 payment shall be governed by the terms of the agreement,
15 provided, however, that in no event shall the payment be
16 less than what would have been paid if the beneficiary
17 were attending a private institution that has not entered
18 into an agreement with the department. Payment shall be
19 made as specified in the agreement.
20 [(g) Tuition payment.--Upon presentation of a certified
21 statement of tuition credits by a participating institution
22 or in anticipation thereof, the department shall calculate
23 the tuition payment for the academic year specified. The
24 tuition payment under this section shall consist of the
25 purchase price of each total annual purchase of tuition
26 credits compounded each year from the year of purchase to the
27 year during which such credits are to be utilized, by the
28 average annual net earnings rate of the fund. The compounded
29 values of annual purchases of tuition credits shall be summed
30 in order of date of purchase until sufficient credits for one
19990S0008B0871 - 16 -
1 academic year are obtained.]
2 (3) Upon submission of such documentation, the
3 department shall make the payment as authorized by the
4 purchaser. Before making the payment authorized by the
5 purchaser, the department shall determine whether the
6 available portion of the value of the account equals or
7 exceeds the authorized payment. If it does not, two separate
8 payments shall be made. The first payment shall be in the
9 amount of the available portion of the value of the account.
10 The second payment shall be in the amount of the difference
11 between the amount of the payment authorized by the purchaser
12 and the available portion of the value of the account, and it
13 shall be paid pursuant to the tuition shortfall provision of
14 section 310.
15 (e) Process for private institution average tuition
16 levels.--The process of establishing private institution average
17 tuition credit purchase prices, redeeming those tuition credits
18 and making tuition payments when a purchaser has designated a
19 private institution average tuition level shall be as follows:
20 (1) On or before August 31, the department shall
21 determine the average tuition credit purchase price or prices
22 for average tuition level or levels for private institutions
23 established pursuant to subsection (b) for the academic year
24 beginning on or after August 1 of that year.
25 (2) Upon application, the department shall issue to a
26 purchaser a statement of accumulated tuition credits
27 available for the payment of qualified higher education
28 expenses for a specific academic period at the private
29 institution average tuition level designated by the
30 purchaser. In the event the purchaser decides to redeem the
19990S0008B0871 - 17 -
1 available tuition credits, the purchaser shall notify the
2 department of the public or private institution at which the
3 beneficiary intends to enroll. In the event the institution
4 is:
5 (i) A public institution, the process for conversion
6 and payment shall be as set forth in subsections (d)(3)
7 and (g).
8 (ii) A private institution that has not entered into
9 an agreement with the department pursuant to section
10 308(b), the available tuition credits shall be redeemable
11 at the average tuition credit purchase price of the
12 designated tuition level established by the department
13 for the year in which they are redeemed. The purchaser
14 shall submit to the department adequate documentation of
15 enrollment, the qualified higher education expenses and
16 the number of credits or dollar value of the credits that
17 the purchaser has decided to redeem. The purchaser shall
18 authorize payment of that amount to the institution, a
19 specified third party, the purchaser and/or the
20 beneficiary. The department shall make the payment in
21 substantially the same manner as specified in subsection
22 (d)(3). Payment under this subsection for any one
23 academic period shall not exceed the amount of the
24 beneficiary's tuition and other qualified higher
25 education expenses for that academic period. If the
26 average tuition level in the year of redemption is
27 insufficient to pay the actual tuition, the department
28 shall have no obligation or authority to pay the
29 insufficiency.
30 (iii) A private institution that has entered into an
19990S0008B0871 - 18 -
1 agreement with the department pursuant to section 308(b),
2 payment shall be governed by the terms of the agreement,
3 provided, however, that in no event shall the payment be
4 less than what would have been paid if the beneficiary
5 were attending a private institution that has not entered
6 into an agreement with the department.
7 (f) Process for specific private institutions with which the
8 department has an agreement.--The purchase and redemption of
9 tuition credits for use at private institutions that have
10 entered into agreements with the department pursuant to section
11 308(b) shall be governed by the terms of those respective
12 agreements. Upon request of a purchaser who has purchased at a
13 tuition level of a specific private institution, a conversion to
14 an average tuition level, a specific public institution or a
15 different private institution that has entered into an agreement
16 with the department, if permitted by the terms of that
17 particular agreement between the department and that particular
18 private institution, shall be made using substantially the same
19 procedure as specified in subsection (g). Upon a decision by the
20 beneficiary for whom tuition credits have been purchased for a
21 private institution that has entered an agreement with the
22 department pursuant to section 308(b) to attend a different
23 private institution that has entered into an agreement with the
24 department but for which the terms of that particular agreement
25 do not provide for a conversion, or to attend a different
26 private institution that has not entered into an agreement with
27 the department pursuant to section 308(b), at the direction of
28 the purchaser, payment shall be made in substantially the same
29 manner as is specified in subsection (e)(2) except that in no
30 event shall the department pay more than it would have paid had
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1 the beneficiary attended the previously designated private
2 institution.
3 (g) Conversion of tuition credits.--At any time during the
4 existence of the tuition account payment contract, upon the
5 request of a purchaser, the department may convert tuition
6 credits purchased at any tuition level to any other tuition
7 level. The method by which the conversion is made shall be
8 determined by the department. Following conversion, the
9 department shall issue to the purchaser a statement of the
10 number of tuition credits converted.
11 (h) Other uses of tuition credits.--The department shall
12 permit the use of tuition credits for master's degree and other
13 postbaccalaureate programs at [participating] eligible
14 educational institutions, after an appropriate conversion. The
15 department [and participating institutions] also may [agree
16 that] permit tuition credits [remaining in a tuition account
17 after tuition is paid may] to be converted into other
18 educational expense credits to be applied [against room, board
19 and other educational expenses. Other educational expense
20 credits shall be determined by an appropriate conversion.] for
21 the payment of qualified higher education expenses other than
22 tuition.
23 (i) Course load or credit hours.--A beneficiary attending [a
24 participating] an eligible educational institution may apply
25 tuition credits to a specific academic year at the maximum
26 course load or maximum number of credit hours generally
27 permitted to full-time undergraduates at that institution.
28 (j) Levy [and], execution and security for loans.--A tuition
29 account or any legal interest therein shall not be subject to
30 attachment, levy or execution by any creditor of a purchaser or
19990S0008B0871 - 20 -
1 beneficiary and shall not be used as security for a loan.
2 (k) Period of participation.--Notwithstanding any of the
3 provisions of this chapter, the following shall apply:
4 (1) Except as provided in paragraph (2), a minimum
5 period of [four years] one year must elapse between the time
6 the first tuition account contract is entered into on behalf
7 of the beneficiary and the time that tuition credits may be
8 issued and redeemed pursuant to [subsection (f)] this
9 section.
10 (2) The board may prescribe an alternative minimum
11 period of time which must elapse between the time the first
12 tuition account contract is entered into on behalf of the
13 beneficiary and the time that tuition credits may be issued
14 and redeemed pursuant to [subsection (f)] this section.
15 (l) Student aid.--The value of tuition credits shall not be
16 used in calculating personal asset contribution for determining
17 eligibility and need for student loan programs, student grant
18 programs or other student aid programs administered by any
19 agency of the Commonwealth, except as otherwise may be provided
20 by Federal law.
21 (m) Residency.--[The purchase payment for tuition credits]
22 The tuition credit purchase price shall be determined with
23 reference to the residency of the beneficiary at the time of
24 purchase, provided, however, that for a resident beneficiary a
25 purchaser may elect to save at a nonresident rate. If the
26 residency of the beneficiary [changes,] at the time the credits
27 are redeemed is different from the residency designated in the
28 tuition account payment contract, or as thereafter changed with
29 the consent of the department, there shall be an appropriate
30 conversion of tuition credits to reflect the differential in
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1 tuition caused by the change of designated residency, if any.
2 (n) Excess contributions.--The department shall institute
3 adequate safeguards to prevent contributions to an account that
4 are in excess of those necessary to provide for the qualified
5 higher education expenses of the beneficiary, as specified in
6 section 529 of the Internal Revenue Code of 1986 (Public Law 99-
7 514, 26 U.S.C. § 1 et seq.), as hereafter amended.
8 (o) Cash contributions.--A purchase of tuition credits may
9 only be made in cash, which may, at the department's discretion,
10 include checks, money orders, credit cards or other similar
11 methods.
12 Section 310. Payments on account of tuition shortfalls.
13 If there are tuition shortfalls on account of beneficiaries
14 attending a [participating institution remain after payments are
15 made pursuant to section 309(g)] public institution or redeeming
16 tuition credits at a private institution average tuition level
17 and if such tuition shortfalls are not paid on behalf of the
18 department pursuant to section 307(b), the total shortfall with
19 respect to that institution shall be paid from the fund as a
20 separate payment pursuant to section 309(d)(3) or (e)(2)(ii).
21 The amount of shortfall payments shall be considered in
22 determining the actuarial soundness of the fund as provided for
23 in section 306(b)(2).
24 Section 311. Tuition account payment contracts.
25 Purchasers buying tuition credits for the use of
26 beneficiaries shall enter into tuition account payment contracts
27 with the department. These contracts shall be in such form as is
28 determined by the department, but shall reflect that the
29 [purchase price of] tuition [credits] credit purchase prices can
30 be adjusted annually [in accordance with sections 306(b)(2) and
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1 309(c)(3)].
2 Section 312. Eligible beneficiaries.
3 Notwithstanding any other eligibility criteria established by
4 the board, the following shall apply:
5 (1) In order to be eligible as a beneficiary, a person
6 must be one of the following:
7 (i) A resident of this Commonwealth at the time the
8 tuition account payment contract is entered into on the
9 person's behalf.
10 (ii) A nonresident if the tuition account payment
11 contract entered into on the person's behalf is purchased
12 by a resident of this Commonwealth, including any legal
13 entity with its principal place of business located
14 within this Commonwealth.
15 (2) The purchaser must designate a beneficiary at the
16 time the purchaser enters into a tuition account payment
17 contract unless the contract is made pursuant to a
18 scholarship program.
19 (3) [The] Unless the tuition account payment contract is
20 established as a scholarship pursuant to section 318, the
21 purchaser may substitute for the beneficiary only a member of
22 the family of the [purchaser or] initial beneficiary upon
23 approval by the department. "Member of the family" is defined
24 by section 529 of the Internal Revenue Code of 1986 (Public
25 Law 99-514, 26 U.S.C. § 529), as hereafter amended.
26 Section 313. Termination and refund.
27 (a) [Inability to attend a participating or nonparticipating
28 institution] Death or disability.--Upon termination of a tuition
29 account, the purchaser or the purchaser's designee shall receive
30 the value of the account [under subsection (f)] if the account
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1 is terminated upon the happening of any of the following:
2 (1) The death of the beneficiary.
3 (2) The disability of the beneficiary which, in the
4 opinion of the department, would make attendance by the
5 beneficiary at [a participating] an eligible educational
6 institution impossible or unreasonably burdensome.
7 [(3) Failure of the beneficiary who, in the opinion of
8 the department, has made a good faith attempt to gain
9 admission to a participating or nonparticipating institution
10 within the time limits imposed by the department.
11 (b) Decision to attend a nonparticipating institution.--Upon
12 termination of a tuition account as a result of a decision by
13 the beneficiary to attend a nonparticipating institution, the
14 department, at the direction of the purchaser or beneficiary and
15 upon presentation of proof of the beneficiary's acceptance by
16 the nonparticipating institution, shall pay to the institution
17 the tuition for the number of tuition credits purchased
18 calculated at the standard tuition level or at the tuition for a
19 specific participating institution, as designated in the tuition
20 account payment contract, or an amount equal to the value of the
21 account under subsection (f), whichever is less. Payment under
22 this subsection for any one academic year shall not exceed the
23 amount of the beneficiary's tuition or other approved
24 educational expenses for that year.
25 (c) Decision not to attend a participating or
26 nonparticipating institution.--Upon termination of a tuition
27 account as a result of a decision by the beneficiary not to
28 attend a participating or nonparticipating institution, within
29 time limits determined by the department, the purchaser or the
30 purchaser's designee shall receive 90% of the tuition for the
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1 number of tuition credits purchased calculated at the standard
2 tuition level or at the tuition for a specific participating
3 institution, as designated in the tuition account payment
4 contract, or an amount equal to 90% of the value of the account
5 under subsection (f), whichever is less.
6 (d) Refunds for other reasons.--In circumstances other than
7 those set forth in this section, the department shall, by
8 regulation, provide for refunds up to but not exceeding the
9 amount authorized under subsection (c).]
10 (b) Refunds for other reasons.--
11 (1) Except as provided in paragraph (2), refunds for
12 reasons other than those set forth in subsection (a) shall be
13 the sum of the payments made pursuant to the tuition account
14 payment contract plus 90% of the difference between the
15 tuition credit purchase prices in the years of purchase and
16 the increased value of the tuition credits had they been
17 redeemed in the academic year of termination.
18 (2) The board may alter the refund provisions set forth
19 in paragraph (1) so long as such alterations are consistent
20 with the requirements for "qualified State tuition programs"
21 provided in section 529 of the Internal Revenue Code of 1986
22 (Public Law 99-514, 26 U.S.C. § 529), as hereafter amended.
23 (3) If a refund is requested under this subsection
24 within the 12 months preceding the purchaser's changing the
25 tuition level, the refund shall be calculated using the value
26 of the tuition credits of the previous or current tuition
27 level, whichever is less.
28 [(e)](c) Fees.--The department may impose a fee upon
29 termination of the account for administrative costs and deduct
30 the fee from the amount otherwise payable.
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1 [(f) Value of account.--The value of the account shall be
2 calculated by compounding annually each separate payment from
3 the time of payment to the time the account is terminated at the
4 actual annual net earnings rate of the fund.
5 (g)](d) Taxation of refunds.--In the event of a refund upon
6 the termination of a tuition account, to the extent the [amount
7 of the] refund amount a purchaser receives exceeds the sum of
8 the payments, it shall be subject to taxation as income under
9 the laws of this Commonwealth[, except when the refund is made
10 pursuant to subsection (b)].
11 [(h)](e) Change of beneficiary.--The substitution of the
12 beneficiary of an account pursuant to section 312(3) shall not
13 be deemed a termination of the account for purposes of this
14 section.
15 [(i)](f) Scholarship.--If a beneficiary is awarded a
16 scholarship, the terms of which cover the benefits included in
17 tuition account payment contracts purchased on behalf of the
18 beneficiary, the purchaser [shall] may receive a refund
19 consisting of the [tuition for the number of] value, in the
20 academic award year the scholarship is paid, of the available
21 tuition credits purchased [calculated at the standard tuition
22 level or at the tuition for a specific participating
23 institution, as designated in the tuition account payment
24 contract, or an amount equal to the value of the account under
25 subsection (f), whichever is less]. The refund under this
26 subsection for any one academic award year shall not exceed the
27 scholarship for that year.
28 Section 316. State tax exemption.
29 (a) Property of fund.--The property of the fund and its
30 income and operation shall be exempt from all taxation by the
19990S0008B0871 - 26 -
1 Commonwealth and its political subdivisions.
2 (b) Tuition credits.--The purchase [and], retention, or
3 transfer during life or as a result of death of tuition credits
4 and their use shall [not be a transaction subject to income or
5 property taxation by the Commonwealth or any of its political
6 subdivisions.] be exempt from all taxation by the Commonwealth
7 and its political subdivisions.
8 Section 2. The act is amended by adding a section to read:
9 Section 318. Scholarship programs.
10 (a) Establishment.--The Commonwealth, any political
11 subdivision of the Commonwealth, and any organization that is
12 exempt from Federal income taxation under section 501(a) and
13 described in section 501(c)(3) of the Internal Revenue Code of
14 1986 (Public Law 99-514, 26 U.S.C. § 501), including the
15 department, if not prohibited by section 529 of the Internal
16 Revenue Code of 1986, may establish a scholarship program to
17 award scholarships consisting of tuition credits to students.
18 Any scholarship program created pursuant to this section shall
19 be registered with the department and shall comply with such
20 requirements as the department may establish. Scholarship
21 beneficiaries shall be selected by the entity establishing the
22 scholarship program, in accordance with criteria established by
23 the entity; and the entity may change the beneficiary as
24 permitted by section 529 of the Internal Revenue Code of 1986.
25 (b) Purchase.--Any person or legal entity may purchase
26 tuition credits on behalf of a scholarship program that is or is
27 to be established in accordance with this section at the same
28 price as is established for the purchase of credits for
29 nonscholarship tuition accounts. Tuition credits shall have the
30 same value to the beneficiary of a scholarship established
19990S0008B0871 - 27 -
1 pursuant to this section as they would have to any other
2 beneficiary of a tuition account payment contract.
3 (c) No requirement.--Nothing in this act shall require the
4 creation of a scholarship account or authorize the use of State
5 funds for such accounts.
6 Section 3. This act shall take effect in 60 days.
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