Brief Summary of Bill

Establishes the Washington Next Generation Educational Savings Account program (program), which establishes an educational savings account for every child born or adopted in the state with an initial deposit of $250 contingent on funding being available.
Provides an additional matching grant for low-income families of $279 if the beneficiary's family saves $250.
Requires that the program be established through a state 529 college savings plan if a college savings plan is established by June 30, 2019, or if not, through traditional savings accounts by contracting with a federally insured financial institution.
Requires a beneficiary to use the funds for a qualifying higher education expense before his or her 29th birthday.
Requires the Student Achievement Council (Council) to coordinate with the Financial Education Public Private Partnership to make financial literacy information available to beneficiary's families.
Creates an account within the State Treasurer.
Requires the Council to report to the Legislature on November 1st of each biennium on the program status.
Requires the Washington State Institution of Public Policy to conduct a program evaluation six years after the program's inception, and each six years thereafter.

Background:

529 College Savings Plans.

A 529 plan, named after section 529 of the Internal Revenue Code, is a tax-advantaged savings plan used to encourage families to save for future higher education expenses. There are two types of 529 plans: pre-paid tuition plans and college savings plans. Washington has a pre-paid tuition plan known as the Guaranteed Education Tuition (GET) program, in which a purchaser can buy a tuition unit at a set price with the guarantee that the tuition unit will be worth the same amount of tuition in the future, regardless of the price of tuition.

The 529 college savings plans are similar to 401Ks and Individual Retirement Accounts in which a person invests a sum of money in market-based investment option. The account savings fluctuate and grow based on market conditions. A beneficiary of a 529 pre-paid tuition plan or college savings plan needs to use the funds for a qualifying higher education expense or the money becomes taxable.

In 2015 the Legislature passed the College Affordability Program, which lowered the price of tuition. As a result, the GET program is currently closed to new accounts while the GET Committee decides how to move forward with the program. In addition, the College Affordability Program required the GET Committee to consider creating a 529 college savings plan. In December of 2015, the GET Committee announced it would move forward with creating a state-run 529 college savings plan.

Universal Children's Savings Accounts.

A few states and cities have established universal children's savings account programs. The states of Maine, Rhode Island, Connecticut, and Vermont have established, or passed legislation to establish, 529 college savings accounts for every child born in their states. Maine has one of the longest running programs called the Harold Alfond College Challenge, in which every baby born to a Maine resident will have a $500 grant automatically invested in Maine's 529 college savings plan. The state invests the $500 grants in one giant, state-owned account, but encourages families to open their own 529 accounts. Once the child turns college age, the grant money must be used for a qualifying higher education expense. The program was funded with a $100 million endowment from the Alfond Foundation.

San Francisco's Kindergarten to College Program.

The City of San Francisco has a similar program called Kindergarten to College, but with a slightly different approach and structure. Ever child who enters kindergarten in a San Francisco public school has a savings account automatically opened for them with a $50 deposit. Children who are enrolled in the National School Lunch Program receive an additional $50 deposit. San Francisco partnered with Citibank to use traditional savings accounts rather than 529 college savings plans. The city holds all of the accounts under a master omnibus account using the city's tax ID number. Therefore, the city can establish sub-accounts for the kindergarteners using information the school district can provide, such as names, dates of birth, and addresses, without social security numbers or signed consent forms from parents. However, in order for kindergarteners to qualify for the additional $50 grant for being enrolled in the National School Lunch Program, a parent needs to sign a consent form to release additional information.

Citibank provides each sub-account with a unique account number and account card, and families can make contributions by mail, online, in person, and by auto-deposit. To avoid tax issues, the accounts do not earn interest, but they do earn a growth amount similar to interest, but at a money market rate. There is also a cap for deposits of $2,500 a year. Only withdrawals for qualifying higher education expenses are allowed, and the kindergartner has to use the money before the age of 25. If not, the grants deposited by the city are forfeited.

Summary of Bill:

The Washington Next Generation Educational Savings Account program (program) is established. The program must be administered by the Student Achievement Council (Council), and the Council has the authority to adopt rules, partner with one or more private organizations to establish and fund the program, and determine when an adequate amount of funding has been secured to begin implementation of the program.

The program requires that the Council establish an educational savings account (account) on behalf of each child born or adopted in the state, contingent upon funding being available. The Council must coordinate with the Department of Health for birth and adoption notices, and a beneficiary's family has the option to opt out of the program.

With the establishment of each account, the Council must deposit an initial grant of $250. For a beneficiary with a family income less than 250 percent of the federal poverty level using the most current guidelines available from the United States Department of Health and Human Services, the Council must provide a one-time matching grant of $279 if the family deposits $250 into the account. The beneficiary, beneficiary's family, and other private and public individuals may deposit funds into an account.

The program has two possibilities for structuring the accounts: either through a state 529 college savings plan or through traditional savings accounts housed within a federally insured financial institution. If the Chair of the Committee on Advanced Tuition Payment notifies the Office of the Code Reviser by June 30, 2019, that a college savings plan has been established, then the program must be established through the college savings plan. If the Chair of the Committee on Advanced Tuition Payment notifies the Office of the Code Reviser by June 30, 2019, that a college savings plan has not been established, then the Council must seek to contract with a federally insured financial institution to establish the program. In the event that the program is established using traditional savings accounts, and a college savings plan is established after June 30, 2019, the Council must study the feasibility of transferring the traditional savings accounts over to the college savings plan. If a transfer is deemed feasible, then the Council may transfer the accounts and establish the program through the college savings plan.

To make a withdrawal from an account, the beneficiary must be:

eighteen years of age; or
enrolled in an eligible educational institution as recognized by the Internal Revenue Service under section 529 of the Internal Revenue Code; and
less than 29 years of age, unless the beneficiary serves in a national service program, such as the United States Armed Forces, National Guard, Americorps, or the Peace Corps, in which case each month of service will increase the maturity date of the account by one month.

Withdrawals from an account may only be used for qualifying higher education expenses. An account will be considered mature when the beneficiary turns 29 years of age, and if the funds are not used for a qualifying higher education expense before the beneficiary's 29th birthday, or in the event the beneficiary dies, unused grant money originally deposited by the Council and any interest earned on the grant money must be returned to the program's main account. Any private contributions and the interest earned on such, must remain with the beneficiary or the beneficiary's family. If private contributions are not used for a qualifying higher education expense, they may be subject to tax regulations. Accounts opened up under the program are exempt from unclaimed property laws and rules until a beneficiary turns 29 years of age.

The Council may coordinate the program with the Advanced College Tuition Payment program to the extent the Council deems appropriate, but the Committee on Advanced Tuition Payment does not have authority over the program.

The Council must coordinate with the Financial Education Public Private Partnership to make financial literacy information available to beneficiaries and their families enrolled in the program.

The Washington Next Generation Educational Savings Account program account is created in the custody of the State Treasurer. All money received for the program is to be deposited into this account.

The Council is required to report to the appropriate committees of the Legislature by November 1st of the beginning of each biennium on the status of the program. The report must include data on the number of accounts opened, the average balances of the accounts, demographics of account holders and their families, and any other information deemed relevant by the Council. The Washington State Institution of Public Policy must conduct a program evaluation after six years of the program's inception, and every six years thereafter.