8 AN ACT establishing the Kansas educational savings plan trust; creating 9 a board of directors thereof; prescribing certain powers and duties; 10 relating to investment income and payments of benefits. 11 12 Be it enacted by the Legislature of the State of Kansas: 13 Section 1. This act shall be known and may be cited as the Kansas 14 educational savings plan trust act. 15 Sec. 2. As used in this act: 16 (a) ``Beneficiary'' means any person designated by a participation 17 agreement to benefit from payments for higher education costs at an 18 institution of higher education; 19 (b) ``benefits'' means the payment of higher education costs on behalf 20 of a beneficiary by the trust during the beneficiary's attendance at an 21 institution of higher education; 22 (c) ``board'' means the board of directors of the Kansas educational 23 savings plan trust; 24 (d) ``endowment fund'' means the endowment fund established by 25 section 7 of this act which shall be held as a separate fund within the 26 trust; 27 (e) ``higher education costs'' means the certified costs of tuition, fees, 28 books, supplies, transportation, room and board or other appropriate ex- 29 penses, or any of the foregoing, for attendance at an institution of higher 30 education; 31 (f) ``institution of higher education'' means a two-year or four-year 32 public or regionally accredited private or nonprofit college or university; 33 (g) ``Kansas educational savings plan trust'' or ``trust'' means the trust 34 created by this act; 35 (h) ``participant'' means an individual, firm, corporation or a legal rep- 36 resentative of any of the foregoing who has entered into a participation 37 agreement pursuant to this act for the advance payment of higher edu- 38 cation costs on behalf of a beneficiary; 39 (i) ``participation agreement'' means an agreement between a partic- 40 ipant and the trust, pursuant to and conforming with the requirements 41 of this act; 42 (j) ``program administrator'' means the administrator of the trust ap- HB 2221 2 1
2 -pointed by the board to administer and manage the trust; 3 (k) ``program fund'' means the program fund established by section 4 7 of this act which shall be held as a separate fund within the trust; 5 (l) ``tuition'' means the quarterly or semester charges imposed to at- 6 tend an institution of higher education and required as a condition of 7 enrollment; 8 (m) ``vested participation agreement'' means a participation agree- 9 ment which has been in full force and effect during the vestment period 10 without default; and 11 (n) ``vestment period'' means eight continuous years of residency in 12 the state while participating in the trust. 13 Sec. 3. There is hereby created a public body corporate and politic 14 to be known as the Kansas educational savings plan trust. The trust shall 15 be an independent political entity and shall have all necessary govern- 16 mental and corporate powers, including the power and authority to: 17 (a) Sue and be sued; 18 (b) make and enter into contracts necessary for the administration of 19 the trust pursuant to this act; 20 (c) adopt a corporate seal and to change and amend it from time to 21 time; 22 (d) invest moneys within the trust, including the program fund and 23 the endowment fund therein, in any investments determined by the board 24 to be appropriate, notwithstanding any other provisions of law, which are 25 specifically determined to be inapplicable to the trust; 26 (e) enter into agreements with any institution of higher education, 27 the state or any federal or other state agency or other entity as required 28 for the effectuation of its rights and duties pursuant to this act; 29 (f) accept any grants, gifts, legislative appropriations and other mon- 30 eys from the state, any unit of federal, state or local government or any 31 other person, firm, partnership or corporation for deposit to the endow- 32 ment fund, which, in the case of any contributions from other than gen- 33 eral funds of the state, may be limited in application to definite classes 34 of beneficiaries; 35 (g) enter into participation agreements with participants; 36 (h) make payments to institutions of higher education pursuant to 37 participation agreements on behalf of beneficiaries; 38 (i) make refunds to participants upon the termination of participation 39 agreements pursuant to the provisions, limitations and restrictions set 40 forth in this act; 41 (j) appoint a program administrator and determine the duties of the 42 program administrator and other staff as necessary and fix their compen- 43 sation; 44 (k) make provision for the payment of costs of administration and HB 2221 3 1 2 -operation of the trust; and 3 (l) carry out the duties and obligations of the trust pursuant to this 4 act and to have any and all other powers as may be reasonably necessary 5 for effectuation of the purposes of the trust and this act. 6 Sec. 4. (a) The trust shall be governed by a board of directors con- 7 sisting of seven voting members. The membership of the board shall be 8 appointed by the governor, subject to confirmation by the senate as pro- 9 vided in K.S.A. 75-4315b and amendments thereto, as follows: One mem- 10 ber from the board of trustees of the Kansas public employees retirement 11 system, one member from the board of regents, one member from the 12 associated students of Kansas, one member from the independent college 13 association, one member from the state department of education and two 14 members shall be representative of the general public. Not more than 15 four members of the board may belong to the same political party. 16 (b) The governor shall appoint the members to initial terms of four 17 years. Each board member shall hold office for the term of such member's 18 appointment and until such member's successor shall have been ap- 19 pointed and qualified. Any vacancy in the board occurring other than by 20 expiration of term shall be filled by the appointment of the governor, but 21 for the unexpired term only. 22 (c) Following the expiration of the initial terms of the public mem- 23 bers, succeeding public members of the board shall be elected by the 24 participants of the trust holding a valid participation agreement. Members 25 shall be elected for terms of four years each by a majority of those casting 26 ballots. 27 (d) Members of the board shall serve without compensation but may 28 receive reasonable reimbursement for actual and necessary expenses in- 29 curred in attendance at board meetings and in connection with other trust 30 business. 31 (e) The board, upon its initial composition and thereafter, shall elect 32 a chairperson, vice-chairperson, secretary, treasurer and other officers as 33 the board deems necessary and appropriate. The board shall select the 34 program administrator, who shall serve at the pleasure of the board and 35 be responsible for the general operation, management and administration 36 of the trust. The program administrator shall serve as a nonvoting mem- 37 ber of the board. 38 (f) A majority of the members of the board shall constitute a quorum 39 for the transaction of business at any meeting of the board or the exercise 40 of a power or function of the trust notwithstanding the existence of va- 41 cancies on the board. Voting upon action taken by the board shall be 42 conducted by a majority vote of the members present at a meeting of the 43 board. The board shall meet at the call of the chairperson and as may be 44 provided in any bylaws adopted by the board. Meetings of the board may HB 2221 4 1 2 -be held at any place within the state. 3 Sec. 5. In addition to effectuating and carrying out all of the powers 4 granted by this act, the board shall have all powers necessary to carry out 5 and effectuate the purposes, objectives and provisions of this act, includ- 6 ing, but not limited to, the powers to: 7 (a) Invest assets of the trust as provided by this act and engage in- 8 vestment advisors to assist in the investment of trust assets; 9 (b) carry out studies and projections in order to advise participants 10 regarding present and estimated future higher education costs and levels 11 of financial participation in the trust required in order to enable partici- 12 pants to achieve their educational funding objectives; 13 (c) disburse trust moneys to any institution of higher education in 14 order to provide for payments required by participation agreements for 15 the benefit of beneficiaries; 16 (d) contract for goods and services and engage personnel as neces- 17 sary, including consultants, actuaries, managers, counsel and auditors for 18 the purpose of rendering professional, managerial and technical assis- 19 tance and advice, all of which contract obligations and services shall be 20 payable out of any moneys of the trust; 21 (e) solicit and accept for the benefit of the endowment fund gifts, 22 grants and other moneys, including general fund appropriations from the 23 state and grants from any federal or other governmental agency and to 24 participate in any other way in any federal, state or local governmental 25 program; 26 (f) promulgate, impose and collect administrative fees and charges in 27 connection with transactions of the trust, and provide for reasonable pen- 28 alties, including penalties for delinquent payments in respect of partici- 29 pation agreements; 30 (g) procure insurance against any loss in connection with the prop- 31 erty, assets or activities of the trust; 32 (h) administer the funds of the trust; 33 (i) procure insurance indemnifying any member of the board from 34 personal loss or accountability arising from liability resulting from a mem- 35 ber's action or inaction as a member of the board; 36 (j) promulgate reasonable rules and regulations for the administration 37 of the trust; and 38 (k) enter into contracts with institutions of higher education to effec- 39 tuate the purpose of and powers granted by this act. 40 Sec. 6. The trust shall have the authority to enter into participation 41 agreements with participants on behalf of beneficiaries pursuant to the 42 following terms and agreements: 43 (a) Each participation agreement shall require a participant to agree 44 to invest a specific amount of money in the trust for a specific period of HB 2221 5 1 2 -time for the benefit of a specific beneficiary. Participation agreements 3 may be amended to provide for adjusted levels of payments based upon 4 changed circumstances or changes in educational plans and may contain 5 penalties for failure to make payments when scheduled; 6 (b) notwithstanding the provisions of subsection (a), participants may 7 elect to enter into a lump-sum payment participation agreement in con- 8 nection with which a single, lump-sum payment is made by the participant 9 for the benefit of a beneficiary; 10 (c) the participation agreement shall determine the minimum rate of 11 interest which shall be borne by the investment made by the participant 12 or in lieu thereof shall provide for alternative procedures or contain a 13 specific formula for the calculation of such rate of interest from the date 14 of deposit of moneys by the participant to the scheduled date of maturity 15 of the participation agreement; 16 (d) beneficiaries designated in participation agreements may be des- 17 ignated from date of birth to age 15; 18 (e) payment of benefits provided under participation agreements 19 must begin not later than the first full fall academic semester at an insti- 20 tution of higher education following the 18th birthday of the subject ben- 21 eficiary, unless the participant notifies the program administrator to the 22 contrary. Upon the occurrence of either event, the funds attributable to 23 the participation agreement shall earn interest at the minimum rate of 24 return beginning on a date specified by the participation agreement. The 25 annual total payment of benefits is limited to the beneficiary's higher 26 education costs; 27 (f) the execution of a participation agreement by the trust shall not 28 guarantee in any way that higher education costs will be equal to projec- 29 tions and estimates provided by the trust or that the beneficiary named 30 in any participation agreement will: 31 (1) Be admitted to an institution of higher education; 32 (2) if admitted, be determined a resident for tuition purposes by the 33 institution of higher education, unless the participation agreement is 34 vested; 35 (3) be allowed to continue attendance at the institution of higher 36 education following admission; or 37 (4) graduate from the institution of higher education; 38 (g) beneficiaries may be changed as permitted by the rules and reg- 39 ulations of the board upon written request of the participant prior to the 40 date of admission of any beneficiary under a participation agreement by 41 an institution of higher education; 42 (h) participation agreements shall be freely amended throughout 43 their terms in order to enable participants to increase or decrease the 44 level of participation, change the designation of beneficiaries and carry HB 2221 6 1 2 -out similar matters; 3 (i) each participation agreement shall provide that for vested partic- 4 ipation agreements, the beneficiary shall be considered a resident of the 5 state for tuition purposes if the beneficiary enrolls in an institution of 6 higher education in this state prior to enrollment in any other educational 7 institution; and 8 (j) each participation agreement shall provide that the participation 9 agreement may be canceled upon the terms and conditions, and upon 10 payment of the fees and costs set forth and contained in the rules and 11 regulations promulgated by the board. 12 Sec. 7. (a) The board shall segregate moneys received by the trust 13 into two funds, which shall be identified as the program fund and the 14 endowment fund. All moneys paid by participants in connection with 15 participation agreements shall be deposited as received into the program 16 fund and shall be promptly invested and accounted for separately. Con- 17 tributions may be withdrawn only for payment of educational expenses. 18 All moneys received by the trust from the proceeds of state appropria- 19 tions, federal and state grants, gifts and other endowments for the pur- 20 poses of the trust shall be deposited as received into the endowment fund, 21 which shall be promptly invested and accounted for separately. The pro- 22 gram fund and the endowment fund shall be separately administered. 23 (b) Any person, firm or corporation may make gifts and grants to the 24 endowment fund and require as a condition that the income from the 25 gifts and grants shall be applied only to the benefit of a particular group 26 or class of beneficiaries, such as the beneficiaries of participants who are 27 employees or members of a particular organization. Such special pay- 28 ments shall not affect the rights of all beneficiaries to share in the general 29 unrestricted income of the endowment fund as provided in subsection 30 (c) on a basis of pro rata equality with other beneficiaries. Notwithstand- 31 ing any provisions in any such gifts or grants limiting same to a specific 32 class of beneficiaries, such gifts or grants shall be irrevocable. 33 (c) Each beneficiary under a participation agreement shall receive a 34 pro rata interest in the investment income derived by the endowment 35 fund. The amount received shall be in the ratio that the principal amount 36 paid by the participant under such participation agreement and interest 37 earned to date thereon bears to the principal amount of all moneys, funds 38 and securities then held in the program fund. At the time any payments 39 or disbursements for higher education costs are due from the trust to any 40 institution of higher education in Kansas under a participation agreement, 41 the trust shall also pay from endowment fund income such proportionate 42 amount, which shall be transferred directly to the institution of higher 43 education in Kansas simultaneously with the payment made from the 44 program fund and shall be used for payment of higher education costs of HB 2221 7 1 2 -the beneficiary. Moneys accrued by participants in the program fund of 3 the trust may be used for payments to any institution of higher education. 4 However, no rights to any moneys derived from the endowment fund 5 shall exist if moneys payable under the participation agreement are paid 6 to an educational institution which is not an institution of higher education 7 in this state, as defined by this act. 8 Sec. 8. Participants shall be permitted to substitute beneficiaries at 9 any time, except that in the event the substitute beneficiary shall be eli- 10 gible for enrollment at an institution of higher education upon a date 11 earlier than the original beneficiary, the trust shall either require the 12 payment by the participant of a fee or cost actuarially determined to place 13 the substituted beneficiary on a basis of actuarial parity with the original 14 beneficiary or pay benefits at a reduced rate equal to the rate of return 15 generated by the participation agreement and the endowment fund dur- 16 ing such lesser time period. There shall be no penalty if the substituted 17 beneficiary is a member of the immediate family of the participant, but 18 if such substituted beneficiary is not a member of the immediate family 19 of the beneficiary, the board may impose a reasonable penalty. 20 Sec. 9. (a) Any participant may cancel a participation agreement at 21 will. In the event the participation agreement is canceled by a participant 22 prior to the expiration of two years from the date of original execution of 23 the participation agreement, there shall be refunded to the participant 24 100% of the principal amount of all contributions made by the participant 25 with no payment of interest thereon, and the participant shall also be 26 required to pay a reasonable administrative refund fee, which shall be 27 sufficient to reasonably compensate the trust for its administrative costs 28 incident to the participation agreement. After a participation agreement 29 has been in effect for two years, participants shall be entitled to the return 30 upon cancellation thereof of the principal amount of all contributions 31 made by participants plus interest on such contributions at the actual rate 32 of interest applicable thereto upon the payment of a reasonable admin- 33 istrative refund fee to be levied by the trust, which shall be sufficient to 34 reasonably compensate the trust for its administrative costs incident to 35 the participation agreement. 36 (b) Upon the occurrence of any of the following circumstances, no 37 reasonable administration refund fee shall be levied by the trust in the 38 event of termination of a participation agreement: 39 (1) Death of the beneficiary; 40 (2) failure of the beneficiary to be admitted to an institution of higher 41 education after filing a proper application for admission thereto; 42 (3) permanent disability or mental incapacity of the beneficiary; or 43 (4) cancellation of a vested participation agreement. 44 In the event of cancellation of a participation agreement for any of the HB 2221 8 1 2 -foregoing causes, the participant shall be entitled to receive the principal 3 amount of all payments made by the participant under the participation 4 agreement and the actual interest earned on the payments. 5 Sec. 10. For all purposes of law, the following shall be applicable: 6 (a) The participant shall retain ownership of all payments made under 7 any participation agreement up to the date of utilization for payment of 8 higher education costs for the beneficiary, and all interest derived from 9 the investment of the payments made by the participant shall be deemed 10 to be held in trust for the trust until the date of payment for higher 11 education costs and thereafter for the benefit of the beneficiary; 12 (b) in the event the participation agreement is terminated prior to 13 payment of higher education costs for the beneficiary, the participant shall 14 retain ownership of all payments made under the participation agreement 15 plus interest on all the payments at the rate of interest at which the 16 payments were invested, except cases of voluntary participant termination 17 within two years from the date of the participation agreement, less a 18 reasonable administrative refund fee of the trust; or, if the participation 19 agreement is terminated after partial utilization of benefits for the ben- 20 eficiary, on a pro rata basis based upon the foregoing; 21 (c) the institution of higher education shall obtain ownership of the 22 payments made for the higher education costs paid to the institution at 23 the time each payment is made to the institution; and 24 (d) any amounts which may be paid pursuant to the Kansas educa- 25 tional savings plan trust, which are not listed in this section, shall be 26 owned by the trust. 27 Sec. 11. No student loan program, student grant program or other 28 program administered by any agency of this state, except as may be oth- 29 erwise provided by federal law or the provisions of any specific grant 30 applicable thereto, shall take into account and consider amounts available 31 for the payment of higher education costs pursuant to the Kansas edu- 32 cational savings plan trust in determining need and eligibility for student 33 aid. 34 Sec. 12. In connection with any participation agreement as to which 35 benefits for payment of higher education costs have accrued and are being 36 paid or are eligible to be paid, the participant thereof may borrow from 37 the trust, but only for the purpose of paying higher education costs to an 38 institution of higher education. The interest rate payable by participants 39 for any such borrowing shall be a rate as established by the board from 40 time to time. Any contribution to such loan program from trust funds or 41 any loan made with trust funds shall be insured. 42 Sec. 13. The trust shall annually prepare or cause to be prepared an 43 accounting of the trust and shall transmit a copy of the accounting to the 44 governor and the legislature. The trust shall also transmit copies of the HB 2221 9 1 2 -accounting to the participants. The accounts and books of the trust shall 3 be subject to annual audit by an independent firm of certified public 4 accountants. 5 Sec. 14. The property of the trust and its income from operations 6 shall be exempt from all taxation by the state or any political or taxing 7 subdivision of the state. Interest earned on moneys paid by any participant 8 shall not be subject to imposition of income tax upon a participant or any 9 beneficiary of a participation agreement, the purposes for which the in- 10 terest was accrued being deemed and declared to be entirely public in 11 nature. Contributions made to the endowment fund shall not be subject 12 to income tax of the state of Kansas. 13 Sec. 15. The assets of the trust, including the program fund and the 14 endowment fund, at all times, shall be preserved, invested and expended 15 solely and only for the purposes of the trust and shall be held in trust for 16 the participants and beneficiaries and no property rights therein shall exist 17 in favor of the state. The assets shall not be transferred or used by the 18 state for any purposes other than the purposes of the trust. 19 Sec. 16. This act shall be construed liberally in order to effectuate 20 its purposes. The purposes of the act and all provisions of the act with 21 respect to powers granted shall be broadly interpreted to effectuate such 22 intent and purposes and not as to any limitation of powers. 23 Sec. 17. This act shall take effect and be in force from and after its 24 publication in the statute book.