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H.B. 369 Enrolled
Brent H. Goodfellow
AN ACT RELATING TO HIGHER EDUCATION; CREATING THE UTAH SUPPLEMENTAL
EDUCATIONAL SAVINGS TRUST AS A MEANS TO ENCOURAGE INVESTMENT
IN A PUBLIC TRUST TO PAY FOR FUTURE HIGHER EDUCATION COSTS;
PROVIDING DEFINITIONS; PROVIDING FOR THE ADMINISTRATION AND
MANAGEMENT OF THE TRUST; PROVIDING FOR PARTICIPATION
AGREEMENTS AND DETAILING THEIR CONTENT; PROVIDING FOR
OWNERSHIP OF CONTRIBUTIONS AND EARNINGS; PROVIDING FOR AN
ANNUAL AUDITED FINANCIAL REPORT; PROVIDING FOR TAX
CONSIDERATIONS; PROVIDING FOR RETROSPECTIVE OPERATION; AND
PROVIDING AN EFFECTIVE DATE.
This act affects sections of Utah Code Annotated 1953 as follows:
59-10-201, as last amended by Chapter 4, Laws of Utah 1996, Second Special Session
53B-8b-101, Utah Code Annotated 1953
53B-8b-102, Utah Code Annotated 1953
53B-8b-103, Utah Code Annotated 1953
53B-8b-104, Utah Code Annotated 1953
53B-8b-105, Utah Code Annotated 1953
53B-8b-106, Utah Code Annotated 1953
53B-8b-107, Utah Code Annotated 1953
53B-8b-108, Utah Code Annotated 1953
53B-8b-109, Utah Code Annotated 1953
53B-8b-110, Utah Code Annotated 1953
53B-8b-111, Utah Code Annotated 1953
53B-8b-112, Utah Code Annotated 1953
59-10-901, Utah Code Annotated 1953
Be it enacted by the Legislature of the state of Utah:
Section 1. Section 53B-8b-101 is enacted to read:
(1) The Legislative findings in Section 53B-8a-101 apply to this chapter.
(2) Further, the Legislature finds that the opportunity to create additional means to encourage
investment in a public trust for future application to the payment of higher education costs exists
under Section 529, Internal Revenue Code.
Section 2. Section 53B-8b-102 is enacted to read:
As used in this chapter:
(1) "Administrative fund" means the moneys used to administer the Utah Supplemental
Educational Savings Plan Trust.
(2) "Benefits" means the payment of a qualified higher education expense as defined in
Section 529(e)(3) of the Code.
(3) "Board" means the board of directors of the Utah Supplemental Educational Savings Plan
Trust, which is the state board of regents acting in its capacity as the Utah Higher Education
Assistance Authority under Title 53B, Chapter 12.
(4) "Code" means the Internal Revenue Code.
(5) "Designated beneficiary" has the same meaning as defined in Section 529(e)(1) of the
(6) "Endowment fund" means the endowment fund established under Section 53B-8a-107.
(7) "Participant" means any individual, firm, corporation, or other person who has entered
into a participation agreement under this chapter for the investment of money in the trust on behalf
of one or more designated beneficiaries.
(8) "Participant account" means each individual account, one per designated beneficiary,
under each participation agreement.
(9) "Participation agreement" means an agreement between a participant and the trust
entered into under this chapter.
(10) "Program administrator" means the administrator of the trust, appointed by the board
to administer and manage the trust.
(11) "Program fund" means the assets of the trust, other than those in the administrative
(12) "Qualified higher education expenses" means expenses as defined by the board to be
in conformity with Section 529 of the Code.
(13) "Utah Supplemental Educational Savings Plan Trust" or "trust" means the trust created
under Section 53B-8b-103.
Section 3. Section 53B-8b-103 is enacted to read:
53B-8b-103. Creation of Utah Supplemental Educational Savings Plan Trust.
(1) There is created the Utah Supplemental Educational Savings Plan Trust.
(2) The board is the trustee of the trust.
(3) The trust may be made operational at the discretion of the board, upon the board's
determination that adequate fiduciary and administrative provisions have been established.
(4) The board, in its capacity as trustee, may:
(a) exercise any authority granted by law to the board of regents;
(b) make and enter into contracts necessary for the administration of the trust created under
(c) adopt a corporate seal and change and amend it from time to time;
(d) invest moneys within the program fund, consistent with the best interests of a designated
beneficiary's higher education funding needs, in mutual funds registered under the Investment
Company Act of 1940 in compliance with the State Money Management Council rules applicable
to gift funds;
(e) enter into agreements with any institution of higher education, the state, or any federal
or other state agency or other entity as required for the effectuation of its rights and duties under this
(f) enter into participation agreements with participants;
(g) make payments to institutions of higher education, participants, and designated
beneficiaries under participation agreements;
(h) appoint a program administrator and determine the duties of the program administrator
and other staff as necessary and fix their compensation;
(i) make provision for the payment of costs of administration and operation of the trust; and
(j) carry out the duties and obligations of the trust under this chapter, and exercise authority
as necessary to ensure that the use of the trust and all related activities constitute a qualified state
tuition program under Section 529 of the Code.
Section 4. Section 53B-8b-104 is enacted to read:
53B-8b-104. Additional powers of board as to the trust.
The board has the power to carry out and effectuate the purposes, objectives, and provisions
of this chapter, including the power to:
(a) one or more investment advisors, registered under the Investment Advisors Act of 1940,
with at least 5,000 advisory clients and at least $1,000,000,000 under management, to provide
investment advice to the board with respect to the assets held in each participant account;
(b) an administrator to perform recordkeeping functions on behalf of the trust; and
(c) one or more consultants to design and implement a marketing program for the trust;
(2) engage a consultant to carry out studies and projections in order to advise participants
regarding present and estimated future higher education costs and levels of financial participation
in the trust required to enable participants to achieve their educational funding objectives and to
provide a basis for limiting contributions to the trust to ensure that it does not fail to qualify as a
qualified state tuition program under Section 529 of the Code;
(3) contract for goods and services and engage personnel as necessary, including consultants,
actuaries, managers, counsel, and auditors to render professional, managerial, and technical
assistance and advice, all of which contract obligations and services shall be payable from any
moneys of the trust;
(4) engage a custodian for the safekeeping of the assets of the trust;
(5) in the interests of efficiency of administration, engage a single contractor responsible for
furnishing or obtaining or both furnishing and obtaining the services described in Subsections (1),
(2), and (3), and any other services necessary for the efficient administration of the trust;
(6) participate in any other way in any federal, state, or local governmental program for the
benefit of the trust;
(7) promulgate, impose, and collect administrative fees and charges in connection with
transactions of the trust, and provide for reasonable service charges, including penalties for
cancellations of and late payments on participation agreements;
(8) procure insurance against any loss in connection with the property, assets, or activities
of the trust;
(9) procure insurance indemnifying any member of the board from personal loss or
accountability arising from liability resulting from a member's action or inaction as a member of the
(10) make rules and regulations for the administration of the trust.
Section 5. Section 53B-8b-105 is enacted to read:
53B-8b-105. Participation agreements -- Content.
(1) Each participation agreement shall provide for the payment of qualified higher education
expenses of the eligible beneficiary of the participation agreement.
(2) The trust has authority to enter into participation agreements with participants on behalf
of designated beneficiaries under the following terms and agreements:
(a) each participation agreement may include one or more designated beneficiaries, and for
each designated beneficiary have a participant account, which the trust shall account for separately;
(b) (i) each participation agreement shall require a participant to agree to invest at least:
(A) $2,500 initially and not less than $100 per month from the date of the participation
agreement until at least the 16th birthday of the youngest designated beneficiary; or
(B) $10,000 initially;
(ii) the program administrator may increase these minimums at his discretion;
(c) each participation agreement shall state clearly that there are no guarantees regarding
moneys in the trust, either as to earnings or as to return of principal, but that the value of each
participant account depends on the performance of the mutual funds chosen by the investment
advisor and the fees and charges under the participation agreement;
(d) the participation agreement does not guarantee in any way that higher education costs
will be equal to projections and estimates provided by the trust or that any designated beneficiary
named in any participation agreement will:
(i) be admitted to an institution of higher education;
(ii) if admitted, be determined a resident for tuition purposes by the institution;
(iii) be allowed to continue attendance at the institution following admission; or
(iv) graduate from an institution of higher education;
(e) each participation agreement shall include provisions necessary to comply with Section
529 of the Code;
(f) each participation agreement shall provide that any contributor to, or designated
beneficiary under, the participation agreement may not direct the investment of any contributions
or earnings on contributions;
(g) each participation agreement shall provide that no part of the money in any participant
account may be used as security for a loan;
(h) each participation agreement shall provide that the participant may withdraw moneys
from any participant account at any time;
(i) each participation agreement may provide for a reasonable fee, consisting of two parts:
(i) the first, an annual administrative charge payable to the administrative fund, assessed
against the assets held under the participation agreement, not to exceed $50 annually; and
(ii) the second, a daily charge deducted from the assets of the program fund at a rate
equivalent to an annual effective rate of not more than .50%, no more than .25% of which shall be
payable to the administrative fund, and no more than .25% of which shall be payable to the
investment advisor for the trust;
(j) each participation agreement shall provide that if a designated beneficiary graduates from
an institution of higher education and a balance remains in the participation account established for
the beneficiary, then the participant shall notify the program administrator and request an immediate
refund of the remaining balance;
(k) each participation agreement shall provide that no participant may borrow from the trust;
(l) each participation agreement shall provide that, notwithstanding any other provision of
law, the program administrator may amend the agreement unilaterally and retroactively, if necessary,
to maintain the trust as a qualified state tuition program under Section 529 of the Code.
Section 6. Section 53B-8b-106 is enacted to read:
53B-8b-106. Program and administrative funds -- Transfer between funds.
(1) The board shall segregate moneys received by the trust into two funds, the program fund
and the administrative fund.
(2) Transfers may be made from the administrative fund to the endowment fund.
(3) Transfers may be made from the program fund to the administrative fund for the purpose
of paying operating costs associated with administering the trust and as otherwise required under this
Section 7. Section 53B-8b-107 is enacted to read:
53B-8b-107. Ownership of contributions and earnings.
(1) All amounts in the program fund are to be held in trust for the benefit of each participant
and each designated beneficiary.
(2) The institution of higher education shall obtain ownership of the payments made to it for
the higher education costs paid to it at the time each payment is made.
Section 8. Section 53B-8b-108 is enacted to read:
53B-8b-108. Effect of payments on determination of need and eligibility for student aid.
A student loan program, student grant program, or other program administered by any agency
of the state, except as otherwise provided by federal law or any specific grant applicable to that law,
may not take into account and consider amounts available for the payment of higher education costs
under this chapter in determining need and eligibility for student aid.
Section 9. Section 53B-8b-109 is enacted to read:
53B-8b-109. Annual audited financial report.
(1) The board shall submit an annual audited financial report, prepared in accordance with
generally accepted accounting principles, on the operations of the trust by November 1 to the
governor, the Legislature's Education Interim Committee, and the state auditor.
(2) The annual audit shall be made either by the state auditor or by an independent certified
public accountant designated by the state auditor and shall include direct and indirect costs
attributable to the use of outside consultants, independent contractors, and any other persons who
are not state employees.
(3) The board shall supplement the annual audit with the following information prepared by
(a) studies or evaluations prepared in the preceding year;
(b) a summary of the benefits provided by the trust, including the number of participants and
designated beneficiaries under the trust; and
(c) any other information which is relevant in order to make a full, fair, and effective
disclosure of the operations of the trust.
Section 10. Section 53B-8b-110 is enacted to read:
53B-8b-110. Tax considerations.
For tax purposes the property of the trust and its income are governed by Section 59-10-901.
Section 11. Section 53B-8b-111 is enacted to read:
53B-8b-111. Property rights to assets in trust.
(1) The assets of the trust, including the program fund and the administrative fund, shall at
all times be preserved, invested, and expended solely for the purposes of the trust and shall be held
in trust for the participants and designated beneficiaries.
(2) The state has no property rights in the assets of the trust.
(3) The state may not transfer or use the trust assets for any purpose other than the purposes
of the trust.
Section 12. Section 53B-8b-112 is enacted to read:
53B-8b-112. Liberal construction.
(1) This chapter shall be construed liberally in order to effectuate its legislative intent.
(2) The purposes of this chapter with respect to powers granted shall be broadly interpreted
to effectuate that intent and not to limit any powers of the board or the program administrator.
Section 13. Section 59-10-201 is amended to read:
59-10-201. Taxation of resident trusts and estates.
(1) A tax determined in accordance with the rates prescribed by Section 59-10-104 for
individuals filing separately is imposed for each taxable year on the state taxable income of each
resident estate or trust, except for trusts taxed as corporations.
(2) A resident estate or trust shall be allowed the credit provided in Section 59-10-106,
relating to an income tax imposed by another state, except that the limitation shall be computed by
reference to the taxable income of the estate or trust.
(3) The property of the [
Savings Incentive Program, and Chapter 8b, Higher Education Supplemental Savings Incentive
Program, and [
state under this chapter.
Section 14. Section 59-10-901 is enacted to read:
59-10-901. Tax considerations for Utah Supplemental Educational Savings Plan Trust.
(1) (a) A contribution to the Utah Supplemental Educational Savings Plan Trust created
under Section 53B-8b-103 on behalf of a designated beneficiary is not a taxable gift.
(b) Income tax is due on investment gains from the trust at the time the gains are actually
(c) At the time of a distribution, any amounts used to pay for qualified higher education
expenses shall be taxed to the designated beneficiary on whose behalf the amounts are distributed.
(2) The tax commission, in consultation with the board, may adopt rules necessary to
monitor and implement Subsection (1) as related to the property of the trust and its investment gains
Section 15. Retrospective operation.
Section 59-10-201 has retrospective operation for taxable years beginning on or after January
1, 1997 .
Section 16. Effective date.
This act takes effect on July 1, 1997.
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