AN ACT Relating to advance tuition payments through the higher education trust; adding a new section to chapter 21.20 RCW; adding a new section to chapter 82.04 RCW; adding a new chapter to Title 28B RCW; and creating a new section.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. The purposes of establishing the higher education trust in this chapter are to:

(1) Encourage education and the means of education, which are vital functions of the state;

(2) Maintain state institutions of higher education by helping to provide a stable financial base to these institutions;

(3) Provide wide and affordable access to state institutions of higher education for all residents of this state;

(4) Encourage attendance at state institutions of higher education;

(5) Provide students and their parents economic protection against rising tuition costs and to provide financing assistance for postsecondary education;

(6) Help provide the benefits of higher education to the people of this state; and

(7) Encourage elementary and secondary students in this state to achieve high standards of performance.

NEW SECTION. Sec. 2. Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Advance tuition payment contract" or "contract" means a contract entered into by the trust and a purchaser under this chapter to provide for the higher education of a qualified beneficiary.

(2) "Treasurer" means the state treasurer.

(3) "Fund" means the advance tuition payment fund created in section 5 of this act.

(4) "Purchaser" means a person who makes or is obligated to make advance tuition payments according to an advance tuition payment contract.

(5) "Qualified beneficiary" or "beneficiary" means any person who was under eighteen years of age and a resident of this state at the time the advance tuition payment contract was entered into.

(6) "State institution of higher education" or "state institution" has the meaning given in RCW 28B.10.016 and includes community colleges and state institutions of education offering baccalaureate degrees.

(7) "Trust" means the higher education trust created in this chapter.

(8) "Tuition" means tuition fees as defined in RCW 28B.15.020.

NEW SECTION. Sec. 3. (1) The Washington higher education trust is created. The trust shall be in the custody of the state treasurer.

(2) The state treasurer shall administer the trust as provided in this chapter.

NEW SECTION. Sec. 4. (1) The treasurer, on behalf of the trust and the state, may contract with a purchaser for the advance payment of tuition by the purchaser for a qualified beneficiary to attend any of the state institutions of higher education to which the qualified beneficiary is admitted, without further tuition cost to the qualified beneficiary. An advance tuition payment contract shall contain the following:

(a) The amount of the payments required from the purchaser on behalf of the qualified beneficiary;

(b) The terms for making the payment, including, but not limited to, the dates upon which the payment, or portions of the payment, shall be due;

(d) The name, age, and birth date of the qualified beneficiary under the contract. The purchaser, with the written approval of and on conditions determined by the state treasurer, may subsequently substitute another person for the qualified beneficiary originally named if that person would meet the requirements for a qualified beneficiary;

(e) The number of credit hours covered by the contract;

(f) The name of the person entitled to terminate the contract, who, 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;

(g) The conditions under which the contract may be terminated and the amount of the refund, if any, to which the person terminating the contract, the purchaser, or designated qualified beneficiary shall be entitled upon termination;

(h) The assumption of a contractual obligation by the state treasurer to the qualified beneficiary on its own behalf and on behalf of the state to provide for the number of credit hours of higher education specified in the contract, not to exceed the specified number of credit hours required for the granting of a baccalaureate degree, at any state institution of higher education to which the qualified beneficiary is admitted. The advance tuition payment contract shall provide for the specified number of credit hours of higher education that a qualified beneficiary may receive under the contract if the beneficiary is not entitled to in-state tuition rates;

(i) A statement that the qualified beneficiary is entitled to in-state tuition rates only if he or she would qualify for in- state tuition rates at the time of admission or attendance, as applicable, under chapter 28B.15 RCW;

(j) The period of time when the qualified beneficiary may receive the benefits under the contract; and

(k) Other provisions the state treasurer considers in the treasurer's discretion to be necessary or appropriate.

(2) The form of any advance tuition payment contract to be entered into by the state treasurer shall first be approved by the higher education coordinating board and the state board for community college education.

(3) The state treasurer shall make any arrangements that are necessary or appropriate with state institutions of higher education in order to fulfill its obligations under advance tuition payment contracts. The arrangements may include, but need not be 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.

(4) An advance tuition payment contract shall provide that the qualified beneficiary may use the trust to attend a community college in this state before entering a state institution offering a baccalaureate degree if the beneficiary chooses. The contract shall also provide that the contract may be terminated pursuant to section 6 of this act after the beneficiary completes the requirements for a degree at a community college in this state or before entering a state institution of higher education offering a baccalaureate degree.

(5) 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 shall retain the amounts otherwise payable and the rights of the qualified beneficiary, the purchaser, or the agent of either shall be considered terminated.

NEW SECTION. Sec. 5. (1) At a minimum, the state treasurer shall offer the two types of contracts set forth in subsections (2) and (3) of this section.

(2) Under plan A:

(a) A payment or series of payments shall be required from the purchaser on behalf of a qualified beneficiary;

(b) The face amount of the payments may be refunded from the trust upon termination of the contract under section 6 of this act in accordance with the terms of the contract, less any administrative fee specified in the contract. Investment income attributable to the payments shall not be refundable;

(c) The trust shall provide that the qualified beneficiary may attend a state institution of higher education, not to exceed the number of credit hours required by the institution for a baccalaureate degree, without further tuition cost to the beneficiary, except as provided in section 4(1) of this act for a beneficiary not entitled to in-state tuition rates.

(3) Under plan B:

(a) A payment or series of payments shall be required on behalf of a qualified beneficiary;

(b) The face amount of the payments may be refunded from the trust upon termination of the contract pursuant to section 6 of this act in accordance with the terms of the contract, less any administrative fee specified in the contract, together with all or a portion of accrued investment income attributable to the payments as agreed in the contract;

(c) The trust shall provide for the qualified beneficiary to attend a state institution of higher education for the number of credit hours required by the institution the beneficiary attends for not more than a baccalaureate degree, without further tuition cost to the qualified beneficiary, except as provided in section 4(1) of this act for a qualified beneficiary who is not entitled to in-state tuition rates.

(4) Contracts offered pursuant to this section may establish a payment schedule based upon the tuition costs at a particular state institution of higher education or at the state institution with the highest prevailing tuition cost for the number of credit hours covered by the contract, if the beneficiary may attend such an institution sooner than four years after the contract is entered into.

(5) Contracts shall be offered for the number of credits for quarters or semesters less than that required to receive a baccalaureate degree and may be offered to cover a community college education.

NEW SECTION. Sec. 6. (1) Termination of the advance tuition payment contract shall only be authorized when one of the following occurs:

(a) The qualified beneficiary dies;

(b) The qualified beneficiary is not admitted to a state institution of higher education after making proper application;

(c) The qualified beneficiary certifies to the state treasurer, after attaining the age of majority, that he or she has decided not to attend a state institution of higher education and requests, in writing, that the advance tuition payment contract be terminated; or

(d) Other circumstances, determined by the state treasurer and set forth in the contract.

(2) The contract may provide for a refund upon termination of the contract to a person specified in the contract. The refund may include all or a portion of the payments made by the purchaser and all or a portion of the accrued investment income attributable to the payments. However, except as provided by subsection (4) of this section, the amount of a refund shall not exceed the prevailing tuition cost on the date of termination for the specified number of credit hours covered by the contract at the state institution of higher education offering baccalaureate degrees that charges the lowest rate of tuition. The amount of a refund shall be reduced by the amount transferred to a community college and to a state institution of higher education on behalf of a qualified beneficiary when the contract is terminated as provided in section 4(4) of this act. Termination of a contract and the right to receive a refund shall not be authorized if the beneficiary has completed more than one-half of the credit hours required by the state institution for a baccalaureate degree. However, this subsection does not affect the termination and refund rights of a graduate of a community college.

(3) An advance tuition payment contract may authorize a person who is entitled to terminate the contract, to direct payment of the refund to an independent degree-granting college, university, or community college in this state. If so directed, the state treasurer shall transfer to the designated institution from the trust an amount equal to the tuition due for the qualified beneficiary, but the state treasurer shall 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 shall be returned to the person to whom the refund is otherwise payable.

(4) The refund paid when a person directs the transfer of the refund to an independent degree-granting college or university in this state shall not exceed the prevailing average tuition cost of state institutions of higher education offering baccalaureate degrees for the number of credit hours covered by the contract on the date of termination.

NEW SECTION. Sec. 7. (1) The advance tuition payment fund is created in the custody of the state treasurer. All moneys received for the trust shall be deposited in the fund. Expenditures from the fund may be spent only for the purposes of the trust specified in this chapter. Disbursements from the fund shall be on authorization of the state treasurer or the treasurer's designee.

(2) Payments received by the trust from purchasers on behalf of qualified beneficiaries or from any other source shall be placed in the fund. The fund may be divided into separate accounts.

(3) Unless otherwise provided by the state treasurer, assets of the trust shall be expended in the following order of priority:

(a) To make payments to state institutions of higher education on behalf of qualified beneficiaries;

(b) To make refunds upon termination of an advance tuition payment contract;

(d) To provide for fee waivers for needy students in addition to the amounts determined under RCW 28B.15.740 only if the obligations under (a) through (c) of this subsection can be met, consistent with the recommendation of the state actuary.

(4) Assets of the trust may be invested in any instrument, obligation, security, or property considered appropriate by the state treasurer and may be pooled for investment purposes with investments of the state, including, but not limited to, state pension funds, on such terms and conditions as are agreeable to the state treasurer.

NEW SECTION. Sec. 8. The state treasurer shall adopt rules under chapter 34.05 RCW to carry out its powers and duties under this chapter.

NEW SECTION. Sec. 9. In addition to other powers granted by law, the state treasurer may:

(1) Invest any money of the trust, at the state treasurer's discretion, in any instruments, obligations, securities, or property determined proper by the state treasurer, and name and use depositories for its money;

(2) Pay money to state institutions of higher education from the trust;

(3) Impose reasonable limits on the number of participants in the trust;

(4) Segregate contributions and payments to the trust into various accounts and funds;

(5) Contract for goods and services and employ personnel as is 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 any money of the trust;

(6) Solicit and accept gifts, grants, loans, and other aids from any person or from the federal, state, or local government, or participate in any way in a federal, state, or local government program;

(7) Charge, impose, and collect administrative fees and charges in connection with any transaction and provide for reasonable penalties, including default, for delinquent payment of fees or charges or for fraud;

(8) Procure insurance against any loss in connection with the trust's property, assets, or activities;

(9) Sue and be sued; have perpetual succession; make, execute, and deliver contracts, conveyances, and other instruments necessary or convenient to the exercise of its powers; and make and amend bylaws;

(10) Enter into contracts on behalf of the state;

(11) Administer the funds of the trust;

(12) Impose reasonable time limits on use of the tuition benefits provided by the trust, if the limits are made a part of the contract;

(13) Define the conditions under which money may be withdrawn from the trust, including, but not limited to, reasonable charges and fees for a withdrawal, if the conditions are made a part of the contract; and

(14) Provide for receiving contributions in lump sums or periodic sums.

NEW SECTION. Sec. 10. The state treasurer shall annually prepare an accounting of the trust and transmit a copy of the accounting to the governor, the state actuary, the majority leader of the senate, the speaker of the house of representatives, and the respective minority leaders of the senate and house of representatives. The state treasurer shall also make available the accounting of the trust to the purchasers of the trust. The accounts shall be subject to annual audits by the state auditor or a certified public accountant appointed by the state auditor.

NEW SECTION. Sec. 11. (1) The trust shall be administered in a manner reasonably designed to be actuarially sound such that the assets of the trust will be sufficient to defray the obligations of the trust.

(2) After receiving the accounting of the trust made under section 10 of this act, the state actuary shall annually evaluate 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 sufficient funds to ensure the actuarial soundness of the trust, the trust shall adjust payments of subsequent purchases to ensure its actuarial soundness.

(3) 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 shall be immediately prorated among the then existing contracts, and these shares shall 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 towards 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.

(4) Before entering into advance tuition payment contracts with purchasers, the state treasurer shall solicit answers to appropriate ruling requests from the internal revenue service regarding the tax status of the value received under the contract to the purchaser or qualified beneficiary. Unless prohibited by federal law or regulation, it is the intent that any federal income taxes be paid by the qualified beneficiaries of the trust at the time the funds are paid. No contracts may be entered into without the state making known the status of the request.

(5) Before entering into advance tuition payment contracts with purchasers, the state treasurer shall solicit answers to appropriate ruling requests from the securities and exchange commission regarding the application of federal security laws to the trust. No contracts may be entered into without the state making known the status of the request.

NEW SECTION. Sec. 12. State institutions of higher education, purchasers, and qualified beneficiaries may enforce this chapter and any contract entered into pursuant to this chapter in the superior court for Thurston county.

NEW SECTION. Sec. 13. The state treasurer, in its discretion, may contract with others, public or private, to provide all or a portion of the services necessary for the management and operation of the trust. The state treasurer shall also endeavor to work with private sector investment managers and independent degree-granting colleges and universities in this state to study the feasibility of instituting programs between these parties that ensure full tuition payment upon purchase of a prepayment plan with the independent college or university.

NEW SECTION. Sec. 14. The assets of the trust shall be preserved, invested, and expended solely for the purposes set forth in this chapter and shall not be loaned or otherwise transferred or used by the state for any other purpose. This section shall not be construed to prohibit the state treasurer from investing in, by purchase or otherwise, bonds, notes, or other obligations of the state, an agency of the state, or an instrumentality of the state.

NEW SECTION. Sec. 15. Nothing in this chapter or in an advance tuition payment contract entered into under this chapter shall be construed as 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 graduate from a state institution of higher education.

NEW SECTION. Sec. 16. An advance tuition payment contract shall be exempt from chapter 21.20 RCW. An advance tuition payment contract shall not be sold or otherwise transferred by the purchaser or qualified beneficiary without the prior approval of the state treasurer.

NEW SECTION. Sec. 17. A new section is added to chapter 21.20 RCW to read as follows:

Advance tuition payments under chapter 28B.-- RCW (sections 1 through 16 of this act) are exempt from this chapter.

NEW SECTION. Sec. 18. A new section is added to chapter 82.04 RCW to read as follows:

This chapter shall not apply to the higher education trust created in chapter 28B.-- RCW (sections 1 through 16 of this act).

NEW SECTION. Sec. 19. Sections 1 through 16 of this act shall constitute a new chapter in Title 28B RCW.

NEW SECTION. Sec. 20. This act shall be construed liberally to effectuate the legislative intent and the purposes of this act.

NEW SECTION. Sec. 21. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.