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13-63 HIGHER EDUCATION SAVINGS PLAN
CHAPTER 13-63

HIGHER EDUCATION SAVINGS PLAN

13-63-1      Definitions.
13-63-2      Powers of South Dakota Investment Council.
13-63-3      Financial institutions as depositories and managers--Bidding by financial institutions--Selection criteria.
13-63-4      Contract with financial institution to serve as program manager.
13-63-5      Duties of program manager.
13-63-6      Term of contract between council and financial institution.
13-63-7      Conditions applicable to nonrenewed contracts.
13-63-8      Termination of contract for good cause--Transfer of accounts.
13-63-9      Program operated through accounts--Requirements for opening account.
13-63-10      Contributions to accounts.
13-63-11      Withdrawals from account.
13-63-12      Changing designated beneficiary.
13-63-13      Transferring funds to another account--Conditions.
13-63-14      Limitations on changing designated beneficiary and rolling over funds.
13-63-15, 13-63-16.      Repealed.
13-63-17      Accounts to be maintained separately.
13-63-18      Contributor, owner, and beneficiary may not direct investments--Council may offer options.
13-63-19      Council to select financial institution in event of transfer of accounts--Exception.
13-63-20      Interest in account not subject to levy, judgment or garnishment--Not deemed asset--Interest not to be used as security--Inclusion as gross asset.
13-63-21      Council to adopt rules to prevent excess contributions.
13-63-22      Account distributions to be reported as required by federal law.
13-63-23      Account statements to be issued at least annually--Contents.
13-63-24      Statements to comply with federal or state tax laws.
13-63-25      Government and non-profit organizations as account owners--Beneficiaries identified after account opened.
13-63-26      Identifying information of account holders and beneficiaries confidential.
13-63-27      Account balance of beneficiary student treated as asset of parent--Exceptions.
13-63-28      Limitations of chapter.
13-63-29      Chapter does not establish guarantees.
13-63-30      Certain disclaimers mandated.
13-63-31      Annual report by council.
13-63-32      Immunity from liability.


13-63-1Definitions.

Terms used in this chapter mean:

(1)    "Account," an account established as prescribed in this chapter;

(2)    "Account owner," the person who, under this chapter or rules promulgated by the council pursuant to chapter 1-26, is entitled to select or change the designated beneficiary of an account, to designate any person other than the designated beneficiary to whom funds may be paid from the account, or to receive distributions from the account if no such other person is designated;

(3)    "Contribution," any payment directly allocated to an account for the benefit of a designated beneficiary or used to pay late fees or administrative fees associated with an account, and that portion of any rollover amount treated as a contribution under section 529 of the Internal Revenue Code and related regulations;

(4)    "Contributor," any person making a contribution to an account;

(5)    "Council," the South Dakota Investment Council;

(6)    "Designated beneficiary," except as provided in § 13-63-25, the individual designated at the time the account is opened as the individual whose higher education expenses are expected to be paid from the account or, if this designated beneficiary is replaced in accordance with § 13-63-12, 13-63-13, or 13-63-14, the replacement beneficiary;

(7)    "Eligible education institution," an institution that is eligible to participate in any financial assistance program authorized by Title IV of the Higher Education Act of 1965, as amended through January 1, 2001, and that is any of the following as permitted by section 529 of the Internal Revenue Code and related regulations:

(a)    An institution described in the Higher Education Act of 1965 (P.L. 89-329, 79 stat. 1219; 20 United States Code sections 1001 through 1150);

(b)    An area vocational educational school as defined in section 521(3), subparagraph (C) or (D) of the Carl D. Perkins Vocational Education Act (P.L. 98-524; 98 stat. 2435; 20 United States Code sections 2301 through 2471);

(c)    An institution accredited for private postsecondary education;

(8)    "Financial institution," any bank, commercial bank, national bank, savings bank, savings and loan association, credit union, an insurance company, brokerage firm, or other similar entity that is authorized to do business in this state;

(9)    "Member of the family," any of the following:

(a)    A son or daughter of an individual or a descendant of the son or daughter of the individual;

(b)    A stepson or stepdaughter of an individual;

(c)    A brother, sister, stepbrother, or stepsister of an individual. For purposes of this subsection, the terms, brother and sister, include a brother or sister by the half-blood;

(d)    The father or mother of an individual or an ancestor of the father or mother of an individual;

(e)    A stepfather or stepmother of an individual;

(f)    A son or daughter of an individual's brother or sister. For purposes of this subsection, the terms, brother and sister, include a brother or sister by the half-blood;

(g)    A brother or sister of an individual's father or mother. For purposes of this subsection, the terms, brother and sister, include a brother or sister by the half-blood;

(h)    A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law of an individual;

(i)    The spouse of an individual or the spouse of an individual described in this subdivision;

(j)    Any individual who meets the criteria to be a member of the family as described in this subdivision as a result of legal adoption;

(k)    Any other individual who is considered a member of the family under section 529 of the Internal Revenue Code and related regulations;

(10)    Deleted by SL 2002, ch 94, § 7.

(11)    "Person," as defined in the regulations to section 529 of the Internal Revenue Code;

(12)    "Program," the higher education savings program established under this chapter;

(13)    "Qualified higher education expenses," tuition, fees, books, supplies, and equipment required for enrollment or attendance and room and board of a designated beneficiary at an eligible education institution, and any other expenses qualifying as qualified higher education expenses under section 529 of the Internal Revenue Code and related regulations; provided that room and board expenses qualify only if the beneficiary enrolls at least half time and only if the expenses do not exceed the minimum room and board allowance determined in calculating costs of attendance for federal financial aid programs;

(14)    Deleted by SL 2002, ch 94, § 7.

(15)    "Rollover," a disbursement or transfer from an account of a designated beneficiary that is transferred to or deposited within sixty days into an account of another individual who is a member of the family of the designated beneficiary, if the transferee account was created under this chapter or under a qualified state tuition program maintained by another state in accordance with section 529 of the Internal Revenue Code and related regulations.

Source: SL 2001, ch 97, § 1; SL 2002, ch 94, § 7.


13-63-2Powers of South Dakota Investment Council.

The council shall:

(1)    Establish the program in the form of a trust to be declared by the council or in such other form as the council may determine;

(2)    Develop and implement the program in a manner consistent with this chapter through the adoption of rules, guidelines, and procedures;

(3)    Retain professional services, if necessary, including accountants, auditors, consultants, and other experts;

(4)    Seek rulings and other guidance from the United States Department of the Treasury and the Internal Revenue Service relating to the program;

(5)    Make changes to the program required for the participants in the program to obtain the federal income tax benefits or treatment provided by section 529 of the Internal Revenue Code and related regulations;

(6)    Interpret, in rules, policies, guidelines, and procedures, the provisions of this chapter broadly in light of its purpose and objectives;

(7)    Charge, impose, and collect administrative fees and service charges in connection with any agreement, contract, or transaction relating to the program;

(8)    Select any financial institution or institutions to act as a depository and manager of the program in accordance with this chapter.

Source: SL 2001, ch 97, § 2.


13-63-3Financial institutions as depositories and managers--Bidding by financial institutions--Selection criteria.

The council may implement the program through the use of one or more financial institutions to act as the depositories and managers. Under the program, persons may establish accounts through the program at a depository. The council may solicit proposals from financial institutions to act as the depositories and managers of the program. Financial institutions that submit proposals must describe the financial instruments that will be held in accounts. Any program depositories and managers selected by the council shall be selected from among bidding financial institutions that demonstrate the most advantageous combination, both to potential program participants and this state, of the following factors:

(1)    Financial stability and integrity;

(2)    The safety of the investment instruments being offered, taking into account any insurance provided with respect to these instruments;

(3)    The ability of the financial institution to track estimated costs of higher education as calculated by the council;

(4)    The ability of the financial institutions, directly or through a subcontract, to satisfy record- keeping and reporting requirements;

(5)    The financial institution's plan for promoting the program and the investment it is willing to make to promote the program;

(6)    The fees, if any, proposed to be charged to persons for maintaining accounts;

(7)    The minimum initial deposit and minimum contributions that the financial institution will require and the willingness of the financial institution to accept contributions through payroll deduction plans and other deposit plans; and

(8)    Any other benefits to this state or its residents included in the proposal, including an account opening fee payable to the council by the account owner and an additional fee from the financial institution for statewide program marketing by the council.

Source: SL 2001, ch 97, § 3.


13-63-4Contract with financial institution to serve as program manager.

The council shall enter into a contract with any financial institution engaged to serve as a program manager and depository. The council may select more than one financial institution if both of the following conditions exist:

(1)    The United States Internal Revenue Service has provided guidance that giving a contributor such a choice will not cause the program to fail to qualify for favorable tax treatment under section 529 of the Internal Revenue Code and related regulations; and

(2)    The council concludes that the choice of financial institutions is in the best interest of program beneficiaries and will not interfere with the promotion of the program.

Source: SL 2001, ch 97, § 4.


13-63-5Duties of program manager.

A program manager shall:

(1)    Take all action required to keep the program in compliance with the requirements of this chapter, the rules promulgated by the council pursuant to chapter 1-26, and any contract with the council to manage the program so that the program is treated as a qualified state tuition plan under section 529 of the Internal Revenue Code and related regulations;

(2)    Keep adequate records of each account, keep each account segregated from each other account and provide the council with the information necessary to prepare statements required by §§ 13-63-22, 13-63-23, and 13-63-24 or file these statements on behalf of the council;

(3)    Compile and total information contained in statements required to be prepared under §§ 13-63-22, 13-63-23, and 13-63-24 and provide these compilations to the council;

(4)    Provide the council with this information to assist the council to determine compliance with § 13-63-21;

(5)    Provide representatives of the council, including other contractors or other state agencies, access to the books and records of the program manager to the extent needed to determine compliance with the contract; and

(6)    Hold all accounts in trust for the benefit of this state and the account owner.

Source: SL 2001, ch 97, § 5.


13-63-6Term of contract between council and financial institution.

Any contract executed between the council and a financial institution pursuant to this chapter shall be for a term of at least three years and not more than seven years.

Source: SL 2001, ch 97, § 6.


13-63-7Conditions applicable to nonrenewed contracts.

If a contract executed between the council and a financial institution pursuant to this chapter is not renewed, all of the following conditions apply at the end of the term of the nonrenewed contract:

(1)    Accounts previously established and held in investment instruments at the financial institution may not be terminated;

(2)    Additional contributions may be made to the accounts; and

(3)    No new accounts may be placed with that financial institution.

Source: SL 2001, ch 97, § 7.


13-63-8Termination of contract for good cause--Transfer of accounts.

The council may terminate a contract with a financial institution at any time for good cause. If a contract is terminated, the council shall take custody of accounts held at that financial institution and shall seek to promptly transfer the accounts to another financial institution that is selected as a program manager and into investment instruments as similar to the original investments as possible.

Source: SL 2001, ch 97, § 8.


13-63-9Program operated through accounts--Requirements for opening account.

The program shall be operated through the use of accounts. An account may be opened by any person who desires to save to pay the qualified higher education expenses of an individual by satisfying each of the following requirements:

(1)    Completing an application in the form prescribed by the council. The application shall include the following information:

(a)    The name, address, and social security number or employer identification number of the contributor;

(b)    The name, address, and social security number or employer identification number of the account owner if the account owner is not the contributor;

(c)    The name, address, and social security number of the designated beneficiary;

(d)    The certification relating to no excess contributions required by § 13-63-21; and

(e)    Any other information that the council may require;

(2)    Paying the one-time application fee established by the council;

(3)    Making the minimum contribution required by the council;

(4)    Designating the type of account to be opened if more than one type of account is offered.

Source: SL 2001, ch 97, § 9.


13-63-10Contributions to accounts.

Any person may make contributions to an account after the account is opened. Contributions to accounts may be made only in cash.

Source: SL 2001, ch 97, § 10.


13-63-11Withdrawals from account.

Account owners may withdraw all or part of the balance from an account as may be authorized by the council, by policies, guidelines, or procedures, or under rules promulgated by the council pursuant to chapter 1-26.

Source: SL 2001, ch 97, § 11; SL 2002, ch 94, § 1.


13-63-12Changing designated beneficiary.

An account owner may change the designated beneficiary of an account to an individual who is a member of the family of the former designated beneficiary or to any other individual in accordance with procedures established by the council by rules promulgated pursuant to chapter 1-26.

Source: SL 2001, ch 97, § 12.


13-63-13Transferring funds to another account--Conditions.

On the direction of an account owner, all or a portion of an account may be transferred to another account of which the designated beneficiary is a member of the family of the designated beneficiary of the transferee account, if the transferee account was created by this chapter or under a qualified state tuition program maintained by another state in accordance with section 529 of the Internal Revenue Code and related regulations.

Source: SL 2001, ch 97, § 13.


13-63-14Limitations on changing designated beneficiary and rolling over funds.

Changes in designated beneficiaries and rollovers are not permitted if the changes or rollovers would violate either of the following:

(1)    Section 13-63-21 relating to excess contributions; or

(2)    Section 13-63-18 relating to investment choice.

Source: SL 2001, ch 97, § 14.


13-63-15
     13-63-15, 13-63-16.   Repealed by SL 2002, ch 94, §§ 8, 9


13-63-17Accounts to be maintained separately.

Each account shall be maintained separately from each other account under the program. Separate records and accounting shall be maintained for each account for each designated beneficiary.

Source: SL 2001, ch 97, § 17.


13-63-18Contributor, owner, and beneficiary may not direct investments--Council may offer options.

No contributor to, account owner of, or designated beneficiary of, any account may, directly or indirectly, direct the investment of any contributions to an account or the earnings from the account, except to the extent permitted under section 529 of the Internal Revenue Code and related regulations.

The council, as trustee, may offer participants a choice of several investment options, some of which may require investment counseling prior to participation. Any investment vehicle offered by the council shall be in accordance with policies of the council adopted pursuant to this chapter and shall be consistent with the investments of a prudent person with similar objectives and shall further be separate from, and not commingled with, other investment programs of the council.

Source: SL 2001, ch 97, § 18; SL 2002, ch 94, § 2.


13-63-19Council to select financial institution in event of transfer of accounts--Exception.

If the council terminates the authority of a financial institution to hold accounts and accounts must be moved from that financial institution to another financial institution, the council shall select the financial institution and type of investment to which the balance of the account is moved unless the Internal Revenue Service provides guidance stating that allowing the account owner to select among several financial institutions that are then program managers and depositories would not cause the program to cease to be a qualified state tuition plan.

Source: SL 2001, ch 97, § 19.


13-63-20Interest in account not subject to levy, judgment or garnishment--Not deemed asset--Interest not to be used as security--Inclusion as gross asset.

Notwithstanding any other provision of law, any amount in or credited to any account is exempt from and is not susceptible to any levy, execution or judgment, or other operation of law, garnishment, or other judicial enforcement. Amounts in an account are not an asset or property of the account owner, contributor, or designated beneficiary for the purposes of paying any debt or liability of any account owner, contributor, or designated beneficiary. No account is subject to involuntary transfer or alienation. Neither an account owner nor a designated beneficiary may use an interest in an account as security for a loan. Any pledge of an interest in an account is of no force and effect. Amounts in an account may not be included in the gross estate of the account owner or contributor for purposes of state tax law, except to the extent that amounts in an account may be includable in the gross estate of the account owner or contributor for purposes of federal tax law. However, any funds in an account that have been contributed within one year prior to the account owner or contributor filing a petition under any chapter of Title 11 of the United States Bankruptcy Code are not exempt by the provisions of this section.

Source: SL 2001, ch 97, § 20; SL 2003, ch 111, § 1.


13-63-21Council to adopt rules to prevent excess contributions.

The council shall adopt policies, guidelines, procedures, or rules pursuant to chapter 1-26 to prevent contributions on behalf of a designated beneficiary in excess of the maximum amounts permitted under section 529 of the Internal Revenue Code and related regulations.

Source: SL 2001, ch 97, § 21; SL 2002, ch 94, § 3.


13-63-22Account distributions to be reported as required by federal law.

If there is any distribution from an account to any person or for the benefit of any person during a calendar year, the distribution shall be reported to the Internal Revenue Service and the account owner or the designated beneficiary to the extent required by federal law.

Source: SL 2001, ch 97, § 22.


13-63-23Account statements to be issued at least annually--Contents.

The financial institution shall provide statements to each account owner at least once each year within thirty-one days after the twelve-month period to which they relate. The statement shall identify the contributions made during a preceding twelve-month period, the total contributions made through the end of the period, the value of the account as of the end of this period, distribution made during this period, and any other matters that the council requires be reported to the account owner.

Source: SL 2001, ch 97, § 23.


13-63-24Statements to comply with federal or state tax laws.

Statements and information returns relating to accounts shall be prepared and filed to the extent required by federal or state tax law.

Source: SL 2001, ch 97, § 24.


13-63-25Government and non-profit organizations as account owners--Beneficiaries identified after account opened.

A state or local government or organizations described in section 501(c)(3) of the Internal Revenue Code and related regulations may open and become the account owner of an account to fund scholarships for persons whose identity will be determined after an account is opened. In this case, the requirement that a designated beneficiary be designated when an account is opened does not apply and each person who receives an interest in the account as a scholarship shall be treated as a designated beneficiary with respect to the interest.

Source: SL 2001, ch 97, § 25.


13-63-26Identifying information of account holders and beneficiaries confidential.

Any social security numbers, taxpayer identification numbers, addresses, or telephone numbers of account holders and designated beneficiaries that come into the possession of the council are confidential, are not public records, and may not be released by the council except as required by federal law.

Source: SL 2001, ch 97, § 26.


13-63-27Account balance of beneficiary student treated as asset of parent--Exceptions.

Any student loan program, student grant program, or other financial assistance program established or administered by this state or by a state supported educational institution shall treat the balance in an account of which the student is a designated beneficiary as if it were an asset of the parent of the designated beneficiary and not as a scholarship or grant or as an asset of the student for determining a student's or parent's income, assets, or financial need.

However, this section does not apply if any of the following conditions exist:

(1)    Federal law requires all or a portion of the amount in an account to be taken into account in a different manner;

(2)    Federal benefits could be lost if all or a portion of the amount in an account is not taken into account in a different manner; or

(3)    A specific grant establishing a financial assistance program requires that all or a portion of the amount in an account be taken into account.

Source: SL 2001, ch 97, § 27.


13-63-28Limitations of chapter.

Nothing in this chapter:

(1)    Gives any designated beneficiary any rights or legal interest with respect to an account unless the designated beneficiary is the account owner;

(2)    Guarantees that a designated beneficiary will be admitted to an eligible education institution or be allowed to continue enrollment at or graduate from an eligible education institution after admission;

(3)    Establishes state residency for an individual merely because the individual is a designated beneficiary; or

(4)    Guarantees that amounts saved pursuant to the program will be sufficient to cover the qualified higher education expenses of a designated beneficiary.

Source: SL 2001, ch 97, § 28.


13-63-29Chapter does not establish guarantees.

Nothing in this chapter establishes any obligation of this state or any agency or instrumentality of this state to guarantee for the benefit of any account owner, contributor to an account, or designated beneficiary any of the following:

(1)    The return of any amounts contributed to an account;

(2)    The rate of interest or other return on any account;

(3)    The payment of interest or other return on any account; or

(4)    Tuition rates or the cost of related higher education expenditures.

Source: SL 2001, ch 97, § 29.


13-63-30Certain disclaimers mandated.

Every contract, application, deposit slip, or other similar document that may be used in connection with a contribution to an account shall clearly indicate that the account is not insured by this state and neither the principal deposited nor the investment return is guaranteed by this state.

Source: SL 2001, ch 97, § 30.


13-63-31Annual report by council.

The council shall submit an annual report to the speaker of the House of Representatives, the president pro tem of the Senate, and the Governor by February first that summarizes the council's findings and recommendations concerning the program established by this chapter.

Source: SL 2001, ch 97, § 31.


13-63-32Immunity from liability.

The council, its members, the state investment officer, and the employees of the Division of Investment personally are immune from any and all liability for actions taken in good faith in the discharge of the council's responsibilities under the program.

Source: SL 2003, ch 112, § 1.


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