S 15 Session 109 (1991-1992)
S 0015 General Bill, By Passailaigue
A Bill to amend the Code of Laws of South Carolina, 1976, by adding Chapter
110 to Title 59 so as to provide for the South Carolina Education Trust Act;
to amend Section 12-7-435, as amended, relating to deductions from South
Carolina taxable income, so as to allow the deduction of payments paid by the
purchaser of an advance tuition payment contract; to require the South
Carolina Education Trust established by this Act to obtain rulings from the
Internal Revenue Service and the Securities and Exchange Commission before
beginning operations and to provide for an unfavorable ruling; to repeal the
Chapter added by this Act if no advance tuition payment contract is entered
into by the Trust before July 1, 1992; and to provide for the initial terms of
the members of the Education Trust Commission.
09/10/90 Senate Prefiled
09/10/90 Senate Referred to Committee on Finance
01/08/91 Senate Introduced and read first time SJ-29
01/08/91 Senate Referred to Committee on Finance SJ-29
A BILL
TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976,
BY ADDING CHAPTER 110 TO TITLE 59 SO AS TO PROVIDE
FOR THE SOUTH CAROLINA EDUCATION TRUST ACT; TO
AMEND SECTION 12-7-435, AS AMENDED, RELATING TO
DEDUCTIONS FROM SOUTH CAROLINA TAXABLE INCOME, SO
AS TO ALLOW THE DEDUCTION OF PAYMENTS PAID BY THE
PURCHASER OF AN ADVANCE TUITION PAYMENT
CONTRACT; TO REQUIRE THE SOUTH CAROLINA EDUCATION
TRUST ESTABLISHED BY THIS ACT TO OBTAIN RULINGS
FROM THE INTERNAL REVENUE SERVICE AND THE
SECURITIES AND EXCHANGE COMMISSION BEFORE
BEGINNING OPERATIONS AND TO PROVIDE FOR AN
UNFAVORABLE RULING; TO REPEAL THE CHAPTER ADDED
BY THIS ACT IF NO ADVANCE TUITION PAYMENT CONTRACT
IS ENTERED INTO BY THE TRUST BEFORE JULY 1, 1992; AND
TO PROVIDE FOR THE INITIAL TERMS OF THE MEMBERS OF
THE EDUCATION TRUST COMMISSION.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Title 59 of the 1976 Code is amended by adding:
"CHAPTER 110
South Carolina Education Trust Act
Section 59-110-10. This chapter may be cited as the 'South Carolina
Education Trust Act'.
Section 59-110-20. As used in this chapter:
(1) 'Advance tuition payment contract' means a
contract entered into by the trust and a purchaser to provide for the
higher education of a qualified beneficiary.
(2) 'Commission' means the South Carolina Education Trust
Commission.
(3) 'Fund' means the advance tuition payment fund.
(4) 'Purchaser' means a person who makes or is obligated to make
advance tuition payments pursuant to an advance tuition payment
contract.
(5) 'Qualified beneficiary' means a resident of this State.
(6) 'State institution of higher education' means a college or
university designated as such by the State Commission on Higher
Education for purposes of this chapter.
(7) 'Trust' means the South Carolina Education Trust.
(8) 'Tuition' means the quarter or semester charges imposed to
attend a state institution of higher education and all mandatory fees
required as a condition of enrollment as determined by the commission.
(9) 'Weighted average tuition cost of state institutions of higher
education' means the tuition cost arrived at by adding the products of the
annual undergraduate tuition cost at each state institution of higher
education and its total number of full-time equivalent undergraduate
students and then by dividing the gross total of this cumulation by the
total number of full-time equivalent undergraduate students attending
state institutions of higher education.
Section 59-110-30. (A) There is created within the office of the State
Treasurer the South Carolina Education Trust governed by a commission
consisting of nine members as follows:
(1) the State Treasurer, ex officio;
(2) eight members appointed by the Governor with the advice
and consent of the Senate as follows:
(a) one member nominated by the President
Pro Tempore of the Senate for a term coterminous with that of the
President Pro Tempore;
(b) one member nominated by the Speaker of the House of
Representatives for a term coterminous with that of the Speaker of the
House;
(c) one member nominated by the Council of Presidents of
State Institutions of Higher Learning for a term of four years;
(d) one member nominated by the Advisory Council of
Private College Presidents for a term of four years;
(e) four members who shall serve for terms of four years, one
of whom must be designated chairman.
(B) Vacancies must be filled in the manner of original
appointment for the unexpired portion of the term. Members shall
receive the per diem, mileage, and subsistence authorized by law for
members of state boards, committees, and commissions.
(C) The staff necessary for the operation of the trust must be
employees of the State Treasurer, and trust expenses must be derived
from administrative charges imposed on trust principal and income after
the trust has operated for three years.
Section 59-110-40. (A) The trust, on behalf of itself and the State,
may contract with a purchaser for the advance payment of tuition by the
purchaser for a qualified beneficiary to attend a state institution of
higher education to which the qualified beneficiary is admitted, without
further tuition cost to the qualified beneficiary. In addition, an advance
tuition payment contract must set forth in a clear, understandable manner
all of the following:
( 1) the amount of the payment required from the purchaser on
behalf of the qualified beneficiary;
( 2) the terms and conditions for making the payment,
including, but not limited to, the date upon which the payment or
portions of the payment are due;
( 3) provisions for late payment charges and for default;
( 4) the name and age of the qualified beneficiary under the
contract. The purchaser, with the approval of and on conditions
determined by the trust, subsequently may substitute another person for
the qualified beneficiary originally named;
( 5) the number of credit hours covered by the contract;
( 6) the name of the person entitled to terminate the contract,
which, as provided by the contract, may be the purchaser, the qualified
beneficiary, or a person to act on behalf of the purchaser or qualified
beneficiary, or any combination of these persons;
( 7) the terms and conditions under which the contract may be
terminated and the amount of the refund, if any, to which the person
terminating the contract, or specifically the purchaser or designated
qualified beneficiary if the contract so provides, is entitled upon
termination;
( 8) the assumption of a contractual obligation by the trust of
the qualified beneficiary on its own behalf and on behalf of the State to
provide for credit hours of higher education, not to exceed the credit
hours required for the granting of a baccalaureate degree, at a state
institution of higher education to which the qualified beneficiary is
admitted. The advance tuition payment contract must provide for the
credit hours of higher education that a qualified beneficiary may receive
under the contract if the qualified beneficiary is not entitled to in-state
tuition rates;
( 9) the period of time from the beginning to the end of which
the qualified beneficiary may receive the benefits under the contract;
(10) all other rights and obligations of the purchaser and the
trust;
(11) other terms, conditions, and provisions as the trust
considers in its sole discretion to be necessary or appropriate.
(B) The form of an advance tuition payment contract to be entered
into by the trust must be approved first by the State Budget and Control
Board.
(C) The trust shall make arrangements that are necessary or
appropriate with state institutions of higher education in order to fulfill
its obligations under advance tuition payment contracts, which
arrangements may include, but are not limited to, the payment by the
trust of the then actual in-state tuition cost on behalf of a qualified
beneficiary to the state institution of higher education.
(D) An advance tuition payment contract must provide that the
trust provide for the qualified beneficiary to attend a technical college
in this State under the jurisdiction of the State Board for Technical and
Comprehensive Education before entering a state institution of higher
education if the beneficiary so chooses, and that the contract may be
terminated pursuant to Section 59-110-60(A)(4) after completing the
requirements for a degree at the technical college in this State or before
entering the state institution of higher education.
(E) An advance tuition payment contract may provide that, if after
a number of years specified in the contract the contract has not been
terminated or the qualified beneficiary's rights under the contract have
not been exercised, the trust, after making a reasonable effort to locate
the purchaser and qualified beneficiary or the agent of either, shall retain
the amounts otherwise payable, and the rights of the qualified
beneficiary, the purchaser, or the agent of either are considered
terminated.
Section 59-110-50. (A) At a minimum, the trust shall offer advance
tuition payment contracts of the two types set forth in subsections (B)
and (C), to be known as Plan One and Plan Two, respectively.
(B) Under Plan One:
(1) A payment or series of payments is required from the
purchaser on behalf of a qualified beneficiary.
(2) If an advance tuition payment contract is terminated before
a qualified beneficiary earns a high school diploma or reaches age
eighteen or pursuant to Section 59-110-60(A)(4), the trust shall refund
the face amount of the payment in accordance with the terms of the
contract, less an administrative fee if specified in the contract, but may
not refund investment income attributable to the payments.
(3) Except as provided in item (4), the trust shall provide for
the qualified beneficiary to attend a state institution of higher education
at which the qualified beneficiary attends for the number of credit hours
required by the institution for the awarding of a baccalaureate degree,
without further tuition cost to the qualified beneficiary, except as
provided in Section 59-110-40(A)(8) for a qualified beneficiary who is
not entitled to in-state tuition rates.
(4) As an alternative to item (3), the trust shall provide for the
qualified beneficiary to attend a state institution of higher education at
which the qualified beneficiary attends for a fixed number of credit
hours, as permitted by the trust, less than the total number of credit hours
required by the institution for the awarding of a baccalaureate degree,
without further tuition cost to the qualified beneficiary for that fixed
number of credit hours, except as provided in Section 59-110-40(A)(8)
for a qualified beneficiary who is not entitled to in-state tuition rates.
(C) Under Plan Two:
(1) A payment or series of payments is required on behalf of
a qualified beneficiary.
(2) If an advance tuition payment contract is terminated before
a qualified beneficiary earns a high school diploma or reaches age
eighteen or pursuant to Section 59-110-60(A)(4), the trust shall refund
the face amount of the payment in accordance with the terms of the
contract, less an administrative fee if specified in the contract, together
with all or a specified portion of accrued investment income attributable
to the payment as may be agreed to in the contract.
(3) Except as provided in item (4), the trust shall provide for
the qualified beneficiary to attend a state institution of higher education
at which the qualified beneficiary attends for the number of credit hours
required by the institution for the awarding of a baccalaureate degree,
without further tuition cost to the qualified beneficiary, except as
provided in Section 59-110-40(A)(8) for a qualified beneficiary who is
not entitled to in-state tuition rates.
(4) As an alternative to item (3), the trust shall provide for the
qualified beneficiary to attend a state institution of higher education at
which the qualified beneficiary attends for a fixed number of credit
hours, as permitted by the trust, less than the total number of credit hours
required by the institution for the awarding of a baccalaureate degree,
without further tuition cost to the qualified beneficiary for that fixed
number of credit hours, except as provided in Section 59-110-40(A)(8)
for a qualified beneficiary who is not entitled to in-state tuition rates.
(D) Contracts required to be offered by this section may require
that payment from a purchaser, on behalf of a qualified beneficiary who
may attend a state institution of higher education in less than four years
after the date the contract is entered into by the purchaser, be based upon
attendance at a certain state institution of higher education or at that state
institution of higher education with the highest prevailing tuition cost for
the number of credit hours covered by the contract.
(E) Contracts required to be offered by this section must be
offered with two alternatives. Alternative one must offer advance tuition
payment contracts that provide the credit hours of higher education
necessary for the granting of a baccalaureate degree at a state institution
of higher education. Alternative two must provide that the number of
credit hours of higher education a qualified beneficiary may receive
under the contract will be reduced to a percentage of the credit hours
required for the granting of a baccalaureate degree at a state institution
of higher education, as specified in the contract, if the qualified
beneficiary enrolls in a state institution of higher education imposing at
the time the qualified beneficiary enrolls an annual tuition rate that is
greater than one hundred five percent of the weighted average annual
tuition rate of all state institutions of higher education. This subsection
does not preclude a state institution of higher education at which a
qualified beneficiary is entitled to receive less than the minimum number
of credit hours required for the granting of a baccalaureate degree from
providing that qualified beneficiary, without further tuition charges, the
additional credit hours necessary to receive a baccalaureate degree.
(F) If a beneficiary of an advance tuition payment contract with
either an alternative one or alternative two designation, as described in
subsection (E), attends a technical college under the jurisdiction of the
State Board for Technical and Comprehensive Education, that
beneficiary then may attend a state institution of higher education at no
additional tuition cost and receive the number of credit hours necessary
for the awarding of a baccalaureate degree. The number of credit hours
the beneficiary may receive must be reduced to reflect credit hours
previously paid for under the contract.
Section 59-110-60. (A) An advance tuition payment contract must
authorize a termination of the contract when any one of the following
occurs:
(1) the qualified beneficiary dies;
(2) the qualified beneficiary is not admitted to a state
institution of higher education after making proper application;
(3) the qualified beneficiary certifies to the trust that he has
decided to attend and has been accepted by a South Carolina
independent, degree-granting institution of postsecondary education
recognized by the State Commission on Higher Education or, after he
has a high school diploma or has reached age eighteen, he has decided
not to attend a state institution of higher education and requests, in
writing, before July fifteenth of the year in which the qualified
beneficiary desires to terminate the contract, that the advance tuition
payment contract be terminated;
(4) other circumstances, determined by the trust and set forth
in the advance tuition payment contract, occur.
(B) Except as provided in Section 59-110-50(B)(2) and (C)(2), an
advance tuition payment contract must provide for a refund pursuant to
this section to a person to whom the refund is payable under the contract
upon termination of the contract. If the qualified beneficiary has a high
school diploma or has reached age eighteen, and attends an institution
of higher education, the amount of a refund, except as provided in
subsection (D), is the weighted average tuition cost of all state
institutions of higher education on the date of termination of the
contract, or the face amount of the payment and accrued investment
income attributable to the payment, if he is covered by alternative one
or the lowest tuition cost of all state institutions of higher education on
the date of termination of the contract if he is covered by alternative two
or does not attend an institution of higher education. The amount of a
refund must be reduced by an appropriate
percentage if the purchaser entered into an advance tuition payment
contract that provided for a fixed number of credit hours less than the
total number of credit hours required by a state institution of higher
education for the awarding of a baccalaureate degree, by the amount
transferred to a technical college on behalf of a qualified beneficiary
when the contract is terminated as provided in Section 59-110-40(D),
and by the amount transferred to a state institution of higher education
on behalf of a qualified beneficiary. Termination of a contract and the
right to receive a refund must not be authorized under the contract if the
qualified beneficiary has completed more than one-half of the credit
hours required by the state institution of higher education for the
awarding of a baccalaureate degree. This provision does not affect the
termination and refund rights of a graduate of a technical college.
Pursuant to this subsection and except as provided by subsection (C), the
trust shall make refund payments in equal installments over four years
and not later than August fifteenth of the year due.
(C) An advance tuition payment contract must authorize a person,
who is entitled under the advance tuition payment contract to terminate
the contract, to direct payment of the refund to an independent
degree-granting college or university located in this State or to an
independent junior college located in this State. If directed to make
payments pursuant to this subsection, the trust shall transfer to the
designated institution an amount equal to the tuition due for the qualified
beneficiary, but the trust may not transfer a cumulative amount greater
than the refund to which the person is entitled. If the refund exceeds the
total amount of transfers directed to the designated institution, the excess
must be returned to the person to whom the refund is otherwise payable.
(D) The amount of a refund paid upon termination of the advance
tuition payment contract by a person who directs the trust pursuant to
subsection (C) to transfer the refund to an independent degree-granting
college or university located in this State must not be less than the
prevailing weighted average tuition cost of state institutions of higher
education for the number of credit hours covered by the contract on the
date of termination. In calculating the amount of a refund for an
advance payment contract containing the restrictions provided by
Section 59-110-50(E), the prevailing weighted average tuition cost must
be based upon only those state institutions of higher education at which
the qualified beneficiary could have received sufficient credit hours for
a baccalaureate degree.
Section 59-110-70. (A) There is created under the jurisdiction and
control of the commission an advance tuition payment fund. Payments
received by the trust from purchasers on behalf of qualified beneficiaries
or from any other source, public or private, must be placed in the fund.
The fund may be divided into separate accounts.
(B) Assets of the trust are not considered state funds for any
purpose.
(C) Unless otherwise provided by resolution of the commission,
assets of the trust must be expended in the following order of priority to:
(1) make payments to state institutions of higher education on
behalf of qualified beneficiaries;
(2) make refunds upon termination of an advance tuition
payment contract;
(3) pay the costs of administration and organization of the
trust and the fund.
(D) Assets of the trust may be invested in an instrument, an
obligation, security, or property considered appropriate by the trust and
may be pooled for investment purposes with investments of the State,
including, but not limited to, state pension funds on terms and conditions
agreeable to the trust.
Section 59-110-80. In addition to the powers granted by other
provisions of this chapter, the commission has the powers necessary to
carry out and effectuate the purposes, objectives, and provisions of this
chapter, including, but not limited to, the power to:
( 1) invest money of the trust, at the commission's discretion, in
instruments, obligations, securities, or property determined proper by the
commission and name and use depositories for its money;
( 2) pay money to state institutions of higher education from the
trust;
( 3) impose reasonable residency requirements for qualified
beneficiaries;
( 4) impose reasonable limits on the number of participants in the
trust;
( 5) segregate contributions and payments to the trust into various
accounts and funds;
( 6) contract for goods and services and engage personnel as
necessary and engage the services of private consultants, actuaries,
managers, legal counsel, and auditors for rendering professional,
management, and technical assistance and advice, payable out of money
of the trust;
( 7) solicit and accept gifts, grants, loans, and other aids from a
person or the federal, state, or a local government, or to participate in
any other way in a federal, state, or local government program;
( 8) charge, impose, and collect administrative fees and charges in
connection with a transaction and provide for reasonable penalties,
including default, for delinquent payment of fees or charges or for fraud;
( 9) procure insurance against any loss in connection with the
trust's property, assets, or activities;
(10) enter into contracts on behalf of the State;
(11) administer the funds of the trust;
(12) indemnify or procure insurance indemnifying a member of the
commission from personal loss or accountability from liability resulting
from a member's action or inaction as a member of the board, including,
but not limited to, liability asserted by a person on bonds or notes of the
authority;
(13) impose reasonable time limits on use of the tuition benefits
provided by the trust, if the limits are made a part of the contract;
(14) define the terms and conditions under which money may be
withdrawn from the trust, including, but not limited to, reasonable
charges and fees for a withdrawal, if the terms and conditions are made
a part of the contract;
(15) provide for receiving contributions in lump sums or periodic
sums;
(16) establish policies, procedures, and eligibility criteria and
promulgate regulations to implement this chapter.
Section 59-110-90. The commission shall prepare or cause to be
prepared annually an accounting of the trust and shall transmit a copy of
the accounting to the Governor, the President Pro Tempore of the
Senate, the Speaker of the House of Representatives, and the respective
chairmen of the Senate Finance Committee and House Ways and Means
Committee. The board shall make available the accounting of the trust
to the purchasers of the trust. The accounts of the board are subject to
annual audits by the State Auditor.
Section 59-110-100. (A) The trust must be administered in a
manner reasonably designed to be actuarially sound so that the assets of
the trust are sufficient to defray the obligations of the trust.
(B) In the accounting of the trust made pursuant to Section
59-110-90, the commission shall evaluate or cause to be evaluated
annually by a nationally recognized actuary the actuarial soundness of
the trust and determine the additional assets needed, if any, to defray the
obligations of the trust. If there are not funds sufficient to ensure the
actuarial soundness of the trust as determined by the nationally
recognized actuary, the trust shall adjust payments of subsequent
purchasers to ensure its actuarial soundness. If there are insufficient
numbers of new purchasers to ensure the actuarial soundness of a plan
of the trust, the available assets of the trust attributable to the plan must
be prorated immediately among the then existing contracts, and these
shares must be applied, at the option of the person to whom the refund
is payable or would be payable under the contract upon termination of
the contract, either toward the purposes of the contract for a qualified
beneficiary or disbursed to the person to whom the refund is payable or
would be payable under the contract upon termination of the contract.
Section 59-110-110. State institutions of higher education,
purchasers, and qualified beneficiaries may enforce this chapter and a
contract entered into pursuant to this chapter in the court of common
pleas of Richland County.
Section 59-110-120. Nothing in this chapter or in an advance
tuition payment contract entered into pursuant to this chapter is a
promise or guarantee by the trust or the State that a person will be
admitted to a state institution of higher education or to a particular state
institution of higher education, will be allowed to continue to attend a
state institution of higher education after having been admitted, or will
be graduated from a state institution of higher education.
Section 59-110-130. An advance tuition payment contract is
exempt from the Uniform Securities Act. An advance tuition payment
contract must not be sold or otherwise transferred by the purchaser or
qualified beneficiary without the prior approval of the trust."
SECTION 2. Section 12-7-435 of the 1976 Code, as last amended by
subsection E, Section 25,
Part II, Act 170 of 1987, is further amended by adding an appropriately
lettered item to read:
"( ) Amounts paid to the South Carolina Education Trust
pursuant to an advance tuition payment contract."
SECTION 3. (A) No advance tuition contract may be entered into by
the trust established by this act unless the Internal Revenue Service
issues a favorable ruling or opinion that the purchaser of an advance
tuition payment contract will not be in actual or constructive receipt of
income as a result. If the ruling is not favorable, the commission shall
prepare and submit to the General Assembly a report outlining its
recommendations for the modification and continuation of the program.
(B) No advance tuition payment contract may be entered into
unless the trust obtains appropriate rulings from the Securities and
Exchange Commission regarding the application of federal security laws
to the trust.
SECTION 4. If no advance tuition payment contract has been entered
into pursuant to this act before July 1, 1992, Chapter 110, Title 59 of the
1976 Code as added by this act is repealed.
SECTION 5. The initial terms of two of the four members of the South
Carolina Education Trust Commission appointed by the Governor
pursuant to Section 59-110-30(A)(2)(e) of the 1976 Code as added by
this act are two years.
SECTION 6. This act takes effect upon approval by the Governor.
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