PA 15-80—sHB 6738

Program Review and Investigations Committee

Finance, Revenue and Bonding Committee

AN ACT IMPLEMENTING THE RECOMMENDATIONS OF THE PROGRAM REVIEW AND INVESTIGATIONS COMMITTEE CONCERNING THE FEDERAL ACHIEVING A BETTER LIFE EXPERIENCE ACT

SUMMARY: This act requires the state treasurer to (1) establish a federally qualified Achieving a Better Life Experience (ABLE) program and (2) administer individual ABLE accounts. The program must encourage and help eligible individuals and families save private funds to pay for qualifying expenses related to disability or blindness. To run the program, the act establishes the Connecticut ABLE Trust, administered by the state treasurer, to receive and hold funds intended for ABLE accounts. It generally exempts money in the trust and interest earnings on it from state and local taxation and requires the state treasurer to ensure that funds are exempt from federal taxation pursuant to federal law.

Under the act, funds invested in, contributed to, or distributed from an ABLE account must be disregarded when determining an individual's eligibility for assistance under federally funded assistance or benefit programs, including:

1. the Temporary Family Assistance program,

2. programs funded under the federal Low Income Home Energy Assistance Program, and

3. the state's medical assistance programs (i. e. , HUSKY and Medicaid).

The act also prohibits the state's public colleges and universities from considering funds invested in ABLE accounts when determining eligibility for need-based institutional aid. In general, institutional financial aid consists of aid originating from the institution and excludes federal or state financial aid awarded to students.

EFFECTIVE DATE: October 1, 2015

1 & 2 — ELIGIBILITY

Designated Beneficiary

The act requires the state treasurer to establish a qualified ABLE program pursuant to the federal ABLE Act (see BACKGROUND) and administer individual ABLE accounts to pay a designated beneficiary's qualified disability expenses. To be designated as a beneficiary, a person must:

1. own an individual ABLE account;

2. be entitled to benefits, based on blindness or disability, under federal Social Security Disability Insurance (SSDI) or federal Supplemental Security Income (SSI) during a taxable year;

3. have acquired his or her disability or become blind before age 26;

4. reside in Connecticut or in a state that (a) does not have a qualified ABLE program and (b) has entered into a contract with Connecticut's state treasurer or other officer to allow its residents to access qualified ABLE programs; and

5. have a disability certification filed with the state treasurer for the taxable year.

Under the act, a disability certification by an individual or his or her parent or guardian must, to the satisfaction of the U. S. Treasury secretary:

1. certify the individual is blind or has a medically determinable physical or mental impairment that (a) results in marked and severe functional limitations and (b) can be expected to result in death or will last for at least 12 months;

2. certify the impairment or blindness occurred before age 26; and

3. include a copy of the individual's diagnosis of impairment or blindness, signed by a licensed physician.

Contribution Limits and Qualified Disability Expenses

Federal law limits the amount one may contribute to an ABLE account and how the account may be used. It generally limits the aggregate amount of contributions to an individual's ABLE account (1) during a taxable year, to the federal annual gift tax exclusion amount ($14,000 in 2015) and (2) in total, to the limit the state establishes for its qualified tuition program (e. g. , the Connecticut Higher Education Trust) (26 USC 529A) ($300,000 in 2015).

The act allows anyone to contribute to an individual ABLE account to meet qualified disability expenses of the account's designated beneficiary. Under the act, qualified disability expenses (1) are made for the designated beneficiary's benefit and (2) relate to his or her blindness or disability. They include expenses for:

1. education,

2. housing,

3. transportation,

4. employment training and support,

5. assistive technology and personal support services,

6. health,

7. prevention and wellness,

8. financial management and administrative services,

9. legal fees,

10. oversight and monitoring expenses,

11. funeral and burial expenses, and

12. other expenses approved by the U. S. Treasury secretary under regulations adopted under the federal ABLE act.

2-5, 7, & 8 — TRUST REQUIREMENTS

2 — Assets

Under the act, the trust must receive and hold all deposits, gifts, bequests, endowments, government grants, and other sources of funds and earnings on those funds, until disbursed to a designated beneficiary for qualified disability expenses. Deposits must be made in cash.

Depositors and beneficiaries may direct the investment of their contributions or amounts in the trust up to twice annually by choosing specific fund options that the state treasurer may establish within the trust.

Under the act, the trust is an instrumentality of the state performing essential government functions, but is not a state agency. Funds in the trust are not state property. They cannot be combined with state funds, and the state has no claim on them, unless the trust is terminated, in which case any unclaimed assets return to the state under the unclaimed property law. Obligations of the trust, including contracts it enters into, are not a debt or obligation of the state, nor does the state have any obligation to anyone on account of the trust. The act limits all amounts obligated to be paid from the trust to amounts on deposit available in the trust for such an obligation. The trust must continue to exist as long as it has deposits or obligations until terminated by law.

3 — State Treasurer's Authority

Under the act, the treasurer, on behalf of the trust and to carry out its purposes, may establish consistent terms for participation agreements, which are agreements between the trust and those making deposits into an ABLE account to benefit a designated beneficiary. Terms include (1) method of payment into ABLE accounts by payroll deduction, transfer from bank accounts, or otherwise; (2) termination, withdrawal, or transfer of payments (including to another state's ABLE program); (3) penalties for improper use of funds; and (4) administration charges or fees.

The treasurer may also:

1. receive and invest the trust's money;

2. enter into contractual agreements for services for the trust and pay for them with the trust's earnings;

3. procure insurance;

4. apply for and receive public and private gifts, grants, and donations;

5. sue and be sued;

6. establish funds within the trust and maintain separate ABLE accounts for each designated beneficiary; and

7. take other necessary actions to carry out the act's purposes.

4 — Investment

The act requires the treasurer to (1) invest the trust's funds in a reasonable way to achieve the trust's objectives; (2) exercise a prudent person's care and discretion; and (3) consider such things as rate of return, risk, maturity, portfolio diversification, liquidity, projected disbursements and expenditures, and expected deposits and other gifts. The act prohibits the treasurer from requiring the trust to invest directly in (1) obligations of the state or any of its political subdivisions or (2) investments or other funds she administers.

Under the act, the treasurer must continuously invest and reinvest the trust's assets until they are (1) disbursed for qualified disability expenses, (2) spent on operating the trust, or (3) refunded to the depositor or the designated beneficiary in accordance with the participation agreement.

5 — Offering and Solicitation

Under the act, material intended for distribution to prospective investors does not have to be filed with the banking commissioner and investments do not have to be registered with him. But the act requires the treasurer to get written advice from counsel or the Securities Exchange Commission that the trust and participation in it are not subject to federal securities laws.

8 — Federal Tax Exemption

The act requires the treasurer to do what is necessary to ensure that the trust complies with federal and state laws so that it constitutes a qualified state ABLE program exempt from federal tax. Under the federal Internal Revenue Code, qualified ABLE programs are generally exempt from income tax to the extent that they do not exceed the qualified disability expenses of the designated beneficiary (26 USC 529A).

7 — State Pledge

The act allows the trust to include a pledge in its participation agreements and other contracts that the state will not alter the rights of participants until all of its obligations are discharged and contracts performed, unless the law makes adequate provision for their protection.

2 — REPORTS

By December 31, 2016, the act requires the treasurer to begin including in her annual reports to the governor information on the operations of the trust, including receipts, disbursements, assets, investments and liabilities, and administrative costs for the prior fiscal year.

By that date, she must also begin submitting annual reports to the Finance, Revenue and Bonding and Public Health committees and making them available to depositors and designated beneficiaries. The reports must include:

1. the number of ABLE accounts,

2. the total amount of contributions to ABLE accounts,

3. the total amount and nature of distributions from ABLE accounts, and

4. a description of any issues relating to any abuse of ABLE accounts.

BACKGROUND

Federal Law

The 2014 federal ABLE Act (P. L. 113-295) allows states to establish and maintain qualified ABLE programs to:

1. encourage and help individuals and families save private funds to support individuals with disabilities to maintain health, independence, and quality of life and

2. provide secure funding for disability-related expenses on behalf of designated beneficiaries with disabilities that will supplement, but not replace, benefits provided through private insurance, Medicaid, SSI, employment, and other sources.

Generally, under federal law, qualified ABLE programs are exempt from federal taxation, and funds in ABLE accounts may not be considered when determining eligibility for benefits or assistance programs authorized by federal law unless the funds exceed $100,000.

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