PART 1. COMPTROLLER OF PUBLIC ACCOUNTS
CHAPTER 7. PREPAID HIGHER EDUCATION TUITION PROGRAM
SUBCHAPTER A. GENERAL RULES
The Comptroller of Public Accounts adopts an amendment to §7.1, concerning general statement of purpose of the Prepaid Higher Education Tuition Board, to incorporate the new prepaid tuition unit undergraduate education program (Texas Tomorrow Fund II), without changes to the proposed text as published in the July 4, 2008, issue of the Texas Register (33 TexReg 5253).
This section is being amended to implement House Bill 3900, 80th Legislature, 2007. House Bill 3900 amends the Education Code, Chapter 54, by adding Subchapter H, Prepaid Tuition Unit Undergraduate Education Program: Texas Tomorrow Fund II (codified at Education Code, §§54.751 - 54.778). House Bill 3900 directs the Texas Prepaid Higher Education Tuition Board ("board") to administer the new prepaid tuition unit undergraduate education program. Under the new law, a person may prepay the costs of all or a portion of a beneficiary's undergraduate tuition and required fees at a general academic teaching institution, two-year institution of higher education, private or independent institution of higher education, or accredited out-of-state institution of higher education. The amendment adds a new subsection (c) to incorporate into the general purpose of the board the responsibility to develop, implement, and administer the new prepaid tuition unit program, and describe the purpose of the program and the subchapters' role in informing the public about the program.
No comments were received regarding adoption of the amendment.
The amendment is adopted under Education Code, §54.752(b)(1), which authorizes the board to adopt rules to implement the Prepaid Tuition Unit Undergraduate Education Program.
The amendment implements Education Code, §54.752.
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on August 7, 2008.
TRD-200804126
Martin Cherry
General Counsel
Comptroller of Public Accounts
Effective date: August 27, 2008
Proposal publication date: July 4, 2008
For further information, please call: (512) 475-0387
The Comptroller of Public Accounts adopts an amendment to §7.21, concerning general responsibilities of the Prepaid Higher Education Tuition Board, without changes to the proposed text as published in the July 4, 2008, issue of the Texas Register (33 TexReg 5254).
This section is being amended to implement House Bill 3900, 80th Legislature, 2007. House Bill 3900 amends the Education Code, Chapter 54, by adding Subchapter H, Prepaid Tuition Unit Undergraduate Education Program: Texas Tomorrow Fund II (codified at Education Code, §§54.751 - 54.778). House Bill 3900 directs the Texas Prepaid Higher Education Tuition Board ("board") to administer the new prepaid tuition unit undergraduate education program. Under the new law, a person may prepay the costs of all or a portion of a beneficiary's undergraduate tuition and required fees at a general academic teaching institution, two-year institution of higher education, private or independent institution of higher education, or accredited out-of-state institution of higher education. The amendment incorporates into the general responsibilities of the board additional powers that may be required to develop, implement, and administer the new prepaid tuition unit program, as authorized by Education Code, §54.752. The amendment revises the language regarding contract approval amounts in paragraph (6) to make this paragraph consistent with a recent amendment to §7.33(5) adopted by the board related to delegated responsibilities. The amendment also adds new paragraph (7) regarding board authority to approve agreements or other transactions with the United States, state agencies, general academic teaching institutions, two-year institutions of higher education, and local governments. And the amendment also adds new paragraph (8) regarding board authority to approve contracts with persons or entities to market and enroll persons in the programs.
No comments were received regarding adoption of the amendment.
The amendment is adopted under Education Code, §54.752(b)(1), which authorizes the board to adopt rules to implement the Prepaid Tuition Unit Undergraduate Education Program.
The amendment implements Education Code, §54.752.
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on August 7, 2008.
TRD-200804127
Martin Cherry
General Counsel
Comptroller of Public Accounts
Effective date: August 27, 2008
Proposal publication date: July 4, 2008
For further information, please call: (512) 475-0387
The Comptroller of Public Accounts adopts an amendment to §7.33, concerning delegated responsibilities of the Prepaid Higher Education Tuition Board that are delegated to the comptroller, as executive director of the board, without changes to the proposed text as published in the July 4, 2008, issue of the Texas Register (33 TexReg 5255).
This section is being amended to implement House Bill 3900, 80th Legislature, 2007, to incorporate additional responsibilities necessary or proper to administer the new prepaid tuition unit undergraduate education program (Texas Tomorrow Fund II). House Bill 3900 amends the Education Code, Chapter 54, by adding Subchapter H, Prepaid Tuition Unit Undergraduate Education Program: Texas Tomorrow Fund II (codified at Education Code, §§54.751 - 54.778). House Bill 3900 directs the Texas Prepaid Higher Education Tuition Board ("board") to administer the new prepaid tuition unit undergraduate education program. Under the new law, a person may prepay the costs of all or a portion of a beneficiary's undergraduate tuition and required fees at a general academic teaching institution, two-year institution of higher education, private or independent institution of higher education, or accredited out-of-state institution of higher education. The amendment incorporates into the delegated responsibilities of the board additional powers outlined in Education Code, §54.752, which may be required by the executive director to implement the new prepaid tuition unit undergraduate education program. The amendment adds new paragraph (7) authorizing the executive director to negotiate agreements or other transactions with the United States, state agencies, general academic teaching institutions, two-year institutions of higher education, and local governments. New paragraph (8) authorizes the executive director to appear before governmental agencies. New paragraph (9) authorizes the executive director to engage the services of private consultants, actuaries, trustees, records administrators, managers, legal counsel, and auditors for administrative or technical assistance. New paragraph (10) authorizes the executive director to solicit and accept on behalf of the board gifts, grants, loans, and other aid from any source or participate in any other way in any government program to carry out this chapter. And new paragraph (11) authorizes the executive director to purchase liability insurance covering the board and employees and agents of the board.
No comments were received regarding adoption of the amendment.
The amendment is adopted under Education Code, §54.752(b)(1), which authorizes the board to adopt rules to implement the Prepaid Tuition Unit Undergraduate Education Program.
The amendment implements Education Code, §54.752.
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on August 7, 2008.
TRD-200804128
Martin Cherry
General Counsel
Comptroller of Public Accounts
Effective date: August 27, 2008
Proposal publication date: July 4, 2008
For further information, please call: (512) 475-0387
The Comptroller of Public Accounts adopts an amendment to §7.42, concerning enrollment period, with changes to the proposed text as published in the May 23, 2008, issue of the Texas Register (33 TexReg 4125).
House Bill 2173, 80th Legislature, 2007, effective June 15, 2007, requires the board to establish by rule criteria and procedures to guide the board in determining when and under what conditions to reopen new enrollment in the program and requires the board to develop procedures for annually assessing whether administrative changes could be made that would enable the board to reopen new enrollment. Subsection (a) is amended to remove obsolete language. Subsection (b) is amended to account for temporary suspensions of enrollment. New subsection (d) is added to require the board, in each year that new enrollment in the program remains closed, to determine if new enrollment may be reopened. The amendments set forth the procedures and the criteria on which the board bases this determination and permits the board to reopen new enrollment in the program in certain circumstances. The amendments also require the board to consider annually the structure of the program and whether statutory or administrative changes could be made that would lead to reopening new enrollment in the program. Subsection (d) was non-substantively changed by deletion of an unnecessary "the" and the replacement of a colon with a comma.
No comments were received regarding adoption of the amendment.
The amendment is adopted under Education Code, §54.619(k), which requires the board to establish by rule procedures and criteria used by the board to make an annual determination whether new enrollment in the program may be reopened.
The amendment implements Education Code, §54.619(k).
§7.42.Enrollment Period.
(a) Except as provided in subsection (c) of this section, each enrollment period shall begin and end on dates set annually by the board and published in the Texas Register. The official postmark date affixed by the United States Postal Service or date stamp evidencing actual receipt of the application at the address specified as follows, whichever is earlier, shall be considered the date of receipt of an application for purposes of the enrollment period. Applications may be mailed to the following address: Prepaid Higher Education Tuition Program, Office of the Comptroller of Public Accounts, P.O. Box 13407, Austin, Texas 78711-3407. In the alternative applications may be delivered to the following address: 111 East 17th Street, Room 1114, Austin, Texas 78774-0001.
(b) The board reserves the right to limit or suspend enrollment if necessary to ensure the actuarial soundness of the fund.
(c) An extended enrollment period for beneficiaries classified as "newborns" may be established by the Board on an annual basis.
(d) In each year that new enrollment in the program is temporarily suspended under Education Code, §54.619(j), the board shall determine whether to reopen new enrollment in the program based on the following criteria: the sufficiency of available alternatives for college savings offered by the state, whether analysis of actuarial data shows that new enrollment in the program may be reopened in an actuarially sound manner, and any other relevant criteria. The board may reopen the program to new enrollment if it determines that the alternatives for college savings offered by the state do not offer Texans sufficient help to attain a college education, and that the program could be reopened in an actuarially sound manner. In each year that new enrollment in the program remains closed, the board shall consider the current structure of the program and determine whether statutory or administrative changes are needed to enable the board to reopen the program to new enrollment in an actuarially sound manner.
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on August 7, 2008.
TRD-200804129
Martin Cherry
General Counsel
Comptroller of Public Accounts
Effective date: August 27, 2008
Proposal publication date: May 23, 2008
For further information, please call: (512) 475-0387
The Comptroller of Public Accounts adopts an amendment to §7.82, concerning termination of prepaid tuition contract, without changes to the proposed text as published in the July 4, 2008, issue of the Texas Register (33 TexReg 5255). The amendment deletes from subsection (d) an obsolete provision prohibiting the purchaser of a prepaid tuition contract that terminated automatically as provided by Education Code, §54.631(b) from receiving a refund. This provision was adopted to comply with a federal law that is no longer in effect.
No comments were received regarding adoption of the amendment.
The amendment is adopted under Education Code, §54.618(b)(2), which gives the board the authority to adopt rules to implement this subchapter.
The amendment implements Education Code, §54.632(c) and §54.632(b), which requires the board to determine the method by which the amount of the refund is calculated and provides that the person named in the contract is entitled to a refund on termination of the contract.
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on August 7, 2008.
TRD-200804130
Martin Cherry
General Counsel
Comptroller of Public Accounts
Effective date: August 27, 2008
Proposal publication date: July 4, 2008
For further information, please call: (512) 475-0387
The Comptroller of Public Accounts adopts new §§7.121 - 7.145, concerning implementation of the new prepaid tuition unit undergraduate education program (Texas Tomorrow Fund II), with changes to the proposed text as published in the July 4, 2008, issue of the Texas Register (33 TexReg 5256). The new sections will be under new Subchapter L, Prepaid Tuition Unit Undergraduate Education Program: Texas Tomorrow Fund II. The new sections implement House Bill 3900, 80th Legislature, 2007. House Bill 3900 amends Education Code, Chapter 54, by adding Subchapter H, Prepaid Tuition Unit Undergraduate Education Program: Texas Tomorrow Fund II (codified in Education Code, §§54.751 - 54.778). House Bill 3900 directs the Texas Prepaid Higher Education Tuition Board ("board") to administer the new prepaid tuition unit undergraduate education program. Under the new law, a person may prepay the costs of all or a portion of a beneficiary's undergraduate tuition and required fees at a general academic teaching institution, two-year institution of higher education, private or independent institution of higher education, or accredited out-of-state institution of higher education.
New §7.121 addresses the application of the rules. The new section provides that the prepaid tuition unit undergraduate education program is being established to enable individuals to enter into a prepaid tuition contract with the board on behalf of a beneficiary for the purchase of tuition units that the beneficiary will be able to redeem for the payment of all or a portion of the beneficiary's undergraduate tuition and required fees at an eligible educational institution.
New §7.122 outlines definitions that are applicable to the program, including among others, definitions of eligible educational institution, tuition unit, Refund Value, Reduced Refund Value, Transfer Value and three-year holding period. As provided by House Bill 3900, eligible educational institutions include general academic teaching institutions, two-year institutions of higher education, private or independent institutions of higher education, or accredited out-of-state institutions of higher education, as defined under Education Code, §61.003 and §54.751.
New §7.123 provides that the program is intended to meet the requirements of Internal Revenue Code, §529 as a qualified tuition program. New §7.124 addresses the purchase of tuition units, types of tuition units (Types I, II and III), assigned value and price of the units.
New §7.125 describes the redemption of tuition units, providing that when a beneficiary under a prepaid tuition contract redeems tuition units to pay costs of tuition and required fees, the board will apply money from the Texas Tomorrow Fund II, in the amount provided by Education Code, §54.765, to pay all or the applicable portion of the costs of the beneficiary's tuition and required fees at the eligible educational institution in which the beneficiary enrolls. Consistent with House Bill 3900, the section provides that tuition units must be held for at least three years before being redeemed to pay for tuition and required fees.
New §7.126 outlines the requirements of a prepaid tuition unit contract required be completed to enroll in the program. New §7.127 describes the requirements to be a purchaser and beneficiary under the program. Consistent with House Bill 3900, the section provides that at the time the purchaser enters into a prepaid tuition contract, the beneficiary of the contract must be a resident of this state or a nonresident who is the child of a parent who is both a resident of this state and the purchaser of the contract.
New §7.128 addresses contract payments. The section provides that payments under prepaid tuition contracts may be made in single or periodic Pay-As-You-Go payments, or under an installment plan, or both. The section also provides that installment payments will include an implied interest component at a rate set by the board to ensure the actuarial soundness of the fund. New §7.129 addresses the deferred use of prepaid credit hours. New §7.130 outlines the requirements to change a beneficiary. New §7.131 describes purchaser obligations and requests.
New §7.132 provides that nothing in these rules should be construed as a promise or guarantee that a beneficiary will be admitted to any public or private institution of higher education, allowed to continue enrollment at a public or private institution of higher education, or allowed to graduate from a public or private institution of higher education.
New §7.133 describes the circumstances for contract termination. New §7.134 describes circumstances of default and delinquency conversion. The section provides that an account is subject to a late payment penalty for payments not received within 15 days of the payment due date. The section provides further that any refund in the event of a default shall be limited to the Reduced Refund Value.
New §7.135 describes the parameters for obtaining a refund on an unused or terminated tuition contract. The section provides generally that if an account is held for three or more years, a purchaser is entitled to a refund of the Refund Value of the account (includes some earnings). If a purchaser cancels the prepaid tuition contract within 3 years of the first payment due date, the purchaser may be entitled to a Reduced Refund Value (no earnings with the refund), unless special circumstances apply. New §7.136 addresses payments to eligible educational institutions upon redemption of tuition units.
New §7.137 describes transfers among Internal Revenue Code, §529, qualified tuition programs. The section provides that a purchaser may transfer money between a prepaid tuition account and an account under another Internal Revenue Code, §529, plan established by this state or by another state or other authorized entity in accordance with Internal Revenue Code, §529, and that the value of the account at the time of transfer is an amount defined as the Transfer Value less any fees due and payable under the contract. New §7.138 outlines recordkeeping requirements for rollover contributions from other Internal Revenue Code, §529, programs.
New §7.139 provides that the board will administer the Texas Tomorrow Fund II in a manner that is sufficiently actuarially sound to pay the costs of program administration and operations and to meet the obligations of the program. The new rule also provides that the board may adjust the terms of subsequent prepaid tuition contracts as necessary to ensure the actuarial soundness of the fund.
New §7.140 provides that on the request of the comptroller as the comptroller considers necessary to ensure the actuarial soundness of the fund, the board may temporarily suspend new enrollment in the program. The new rule provides further that if the comptroller determines that the program is financially infeasible, the comptroller will notify the governor and the legislature and recommend that the program be modified or terminated. New §7.141 addresses the effect of program termination on an existing contract. New §7.142 outlines the requirement for and components of an annual statement for the purchaser regarding the status of the purchaser's prepaid tuition contract.
New §7.143 describes the Texas Save and Match program under which money paid by a purchaser under a prepaid tuition contract may be matched with contributions made by another person or entity to the Texas Save and Match program and used to purchase additional tuition units on behalf of the beneficiary. Contributions may also be matched with any money appropriated by the legislature for the Texas Save and Match program and used to purchase additional tuition units on behalf of certain beneficiaries. New §7.144 allows gift contributions to be made, and provides that a person or entity may purchase tuition units for a beneficiary designated in an existing prepaid tuition contract by making a gift contribution.
New §7.145 describes marketing considerations, and provides that the program will be marketed in a manner that promotes the participation goals and targets of the most recent revision of "Closing the Gaps," the state's master plan for higher education.
We received comments from the Center for Public Policy Priorities (CPPP), RAISE Texas, and staff members from comptroller's office. Following is a summary of the comments received and the responses.
A staff member from the comptroller's office commented that in §7.121(b), the room number for program staff at 111 East 17th Street in Austin, Texas should be Room 1115 instead of Room 1114. The board agrees and has corrected the rule accordingly.
The CPPP and RAISE Texas commented on the proposed enrollment period, and recommended that the board establish a provisional enrollment status during the interim period that is outside the regular enrollment period, similar to the State of Florida's prepaid program. CPPP and RAISE Texas expressed concern that the regular enrollment period from September to the end of February could erect a barrier for families, especially those households eligible for the Earned Income Tax Credit (EITC) who may receive their tax credit payments outside of the enrollment period and be more willing to enroll when the tax credit is received. The board agrees with the basis for the comment and has revised the definition of "enrollment period" in §7.122(5) to authorize, but not require, the executive director to develop a provisional enrollment process that allows potential purchasers to apply outside of the designated enrollment period with the pricing to be established in the next enrollment period. The nature and extent of any provisional enrollment process will need to be developed further in conjunction with the plan manager to determine what may be feasible to implement during the first year of program operation.
The CPPP and RAISE Texas expressed support for the minimum tuition unit purchase requirement of one unit as outlined in §7.124(h)(1), as being extremely important to ensuring access to enrollment. The board agrees with this comment with respect to the minimum required purchase using the Pay-As-You-Go payment option (purchasing tuition units at current prices, at regular or irregular intervals in whatever frequency desired). The board, however, has removed "lump sum" purchase from the allowable one tuition unit minimum purchase in subsection (h)(1) because it is administratively infeasible to maintain indefinitely a single account consisting of only one tuition unit. Under a lump sum purchase, a purchaser would ordinarily purchase tuition units only once when a contract is opened, without intending to purchase additional tuition units in the future. The recurring administrative cost to the fund would exceed any possible benefit if an account were set up and maintained indefinitely with only one tuition unit, and the single tuition unit would not provide any meaningful educational benefit to the beneficiary. For Pay-As-You-Go purchases, the board has maintained the minimum purchase requirement of only one tuition unit, under the assumption that a purchaser will be purchasing additional tuition units at some point in the future, so as to make the account worthwhile for both the beneficiary and the fund.
A staff member of the comptroller's office recommended lowering the minimum required payment in §7.124(h)(1) - (3) for additional Pay-As-You-Go or Automated Clearing House (ACH) payments from $25 to $15, because the tuition unit prices for Type III units will initially be lower than the $25 minimum specified in the original rule proposal, and it will be more cost effective to process ACH payments even if they are lower than $25. The board agrees with this comment and has lowered the required minimum payment threshold to $15 for additional Pay-As-You-Go purchases or ACH payments after enrollment. Allowing a lower minimum payment will enable more persons to sign up for regular ACH payments as a way to save for college.
The CPPP expressed support for §7.125(h) and (i), regarding redemption of units, to ensure flexibility for students. These provisions allow beneficiaries to redeem more than 100 tuition units in a year, and provide for the calculation of a per credit hour tuition unit cost, to allow beneficiaries to attend more or less credit hours than the specified 30 semester credit hours. No change was requested to the rule. The board agrees with this comment and has accordingly made no changes to these subsections.
The CPPP commented on §7.126(b)(3), suggesting a method for determining the projected date of high school graduation, using a date-of-birth-plus-18 methodology. The CPPP and RAISE Texas also requested that §7.126(b)(7) be clarified to request the purchaser to provide the appropriate year of gross income on the enrollment application. While the board agrees with the desired goals of the comments, no changes to the rules are required based on these comments. The plan manager envisions that the data processing system used for prepaid tuition contract management will automatically compute the graduation date based upon the date of birth of the beneficiary, similar to the methodology suggested by CPPP. In addition, the prepaid tuition contract application will request the purchaser to provide a current income range, clarifying the information required by the rule, so no rule change is required.
A staff member of the comptroller's office recommended a change to §7.127(d), regarding the residency requirement of the beneficiary or purchaser, to make it more consistent with the statutory requirements reflected in Education Code, §54.756(c). The board agrees with this comment. Education Code, §54.756 requires that at the time the purchaser enters into a prepaid tuition contract, either the beneficiary of the contract must be a resident of Texas, or the beneficiary must be a nonresident who is the child of a parent who is a resident of Texas at the time that parent enters into the contract. A change was made to §7.127(d)(2) to reflect the statutory requirements.
The CPPP expressed support for the proposed language in §7.130(d), which provides that no fee will be imposed for a change of beneficiary, to give purchasers flexibility. The board agrees with the comment, which is consistent with Education Code, §54.759(c), and accordingly has made no change to this rule.
The CPPP and RAISE Texas commented on §7.142(a)(1), and CPPP commented on subsection (a)(3), regarding the annual account statement, recommending that the annual account statement be clarified to include any matching contributions made to purchase tuition units. The CPPP also recommends providing on the account statement the semester equivalent of the number of tuition units held by a purchaser. The board declines to change the rule in response to these comments because no rule change is required to implement these recommendations, if the recommendations are determined to be implementable at a reasonable cost. These recommendations will be evaluated with the plan manager to determine the feasibility and cost of tracking and reporting matching contributions on a purchaser's individual account statement. The executive director will also work with the plan manager to explore the feasibility of clarifying on the annual account statement the approximate value in semester hours for the tuition units purchased.
The CPPP and RAISE Texas commented on §7.143(d), regarding soliciting and accepting donations to the Texas Save and Match program, and recommended the board consider using a nonprofit organization to stimulate and accept tax-deductible donations. The CPPP recommends using either an existing nonprofit organization, or consider the creation of a new nonprofit organization for this purpose. While the board agrees that nonprofit organizations might facilitate donations to the Save and Match program, no rule change is needed in response to this comment. This section allows the executive director or the board to solicit and accept grants or donations from any source. The use of nonprofit organizations to stimulate and accept donations can be considered by the executive director when developing operating procedures for the Save and Match program.
RAISE Texas commented on §7.143(e)(1), recommending that "entity" be added to the list of those authorized to contribute to the Save and Match program, in addition to a person. The board agrees with this comment and has added "entity" to §7.143(e)(1).
These rules are adopted under House Bill 3900, 80th Legislature, 2007, which requires the board to administer the prepaid tuition unit undergraduate education program, and Education Code, §54.752(b)(1), which authorizes the board to adopt rules to implement the program.
The new sections implement Education Code, Chapter 54, Subchapter H.
§7.121.Application.
(a) This subchapter applies to prepaid tuition contracts under the prepaid tuition unit undergraduate education program (Texas Tomorrow Fund II) to enable individuals to enter into a prepaid tuition contract with the board on behalf of a beneficiary for the purchase of one or more tuition units that the beneficiary is entitled to apply to the payment of the beneficiary's undergraduate tuition and required fees at an eligible educational institution.
(b) Applications shall be made available through the Prepaid Tuition Unit Undergraduate Education Program, Office of the Comptroller of Public Accounts, P.O. Box 13407, Austin, Texas 78711-3407; 111 East 17th Street, Room 1115, Austin, Texas 78711-1440, or by calling toll-free at 1-800-445-4723 (GRAD), or as otherwise provided by the board on the board's Internet web site.
(c) The rights of purchasers and beneficiaries are subject to the provisions of this subchapter, Education Code, Chapter 54, Subchapter H, Internal Revenue Code, §529, and the terms and conditions of the prepaid tuition contract. To the extent of irreconcilable conflict, the provisions of Internal Revenue Code, §529; Education Code, Chapter 54, Subchapter H; and this subchapter prevail over the prepaid tuition contract. Any amendment to Internal Revenue Code, §529; Education Code, Chapter 54, Subchapter H; or this subchapter that would apply to a prepaid tuition contract will automatically constitute an amendment to the prepaid tuition contract.
§7.122.Definitions.
The following words, terms, and phrases, when used in this subchapter, shall have the following meanings:
(1) "Accredited out-of-state institution of higher education" means a public or private institution of higher education that:
(A) is located outside this state; and
(B) is accredited by a recognized accrediting agency.
(2) "Beneficiary" means the person designated under a prepaid tuition contract as the person entitled to apply one or more tuition units purchased under the contract to the payment of the person's undergraduate tuition and required fees at a general academic teaching institution, two-year institution of higher education, private or independent institution of higher education, or accredited out-of-state institution of higher education.
(3) "Board" means the Prepaid Higher Education Tuition Board.
(4) "Eligible educational institution" means a general academic teaching institution, two-year institution of higher education, private or independent institution of higher education, or accredited out-of-state institution of higher education, that qualify as eligible educational institutions under Internal Revenue Code, §529.
(5) "Enrollment period" means the period established by the board during which a purchaser may enter into a contract with the board to purchase tuition units. The initial enrollment period is September 1 through the end of February. For beneficiaries who are newborn infants under one year of age at the time of enrollment, the initial enrollment period will be extended to cover the period of September 1 through July 31. These enrollment periods will apply annually thereafter subject to change by the board. The executive director may establish a provisional enrollment process to allow potential applicants to begin the enrollment process outside of the enrollment period with pricing to be established in the next enrollment period.
(6) "First payment due date" means the date the first payment is due after enrolling in the program and establishing a new prepaid tuition contract. The first payment due date will be specified in the prepaid tuition contract, and shall initially be established as May 1st. The first payment due date serves as the anniversary date for establishing the three-year holding period. The first payment due date may be changed subsequently by the board for future enrollment periods.
(7) "Fund" means the Texas Tomorrow Fund II.
(8) "General academic teaching institution" has the meaning assigned by Education Code, §61.003, except that the term does not include a public state college.
(9) "Market value" means an amount equal to the total purchase price of any unused tuition units, plus the portion of the total net earnings on assets of the Fund attributable to that amount (including any negative returns).
(10) "Matriculation" means enrollment as a member of the student body at an eligible educational institution.
(11) "Paid in full" means that all the required payments for the tuition units and any assessed fees under the prepaid tuition contract have been received and credited to the account.
(12) "Pay-As-You-Go" means purchasing tuition units at the price in effect for that type of tuition unit on the day payment is received for the tuition unit. Pay-As-You-Go includes paying for tuition units with a lump sum payment or multiple lump sum payments, without being obligated to pay for any additional tuition units.
(13) "Plan manager" means a professional investment manager that is under contract with the board to serve as a plan administrator and to invest the assets of the fund on behalf of the board.
(14) "Prepaid tuition contract" means a contract under which a person purchases from the board on behalf of a beneficiary one or more tuition units that the beneficiary is entitled to apply to the payment of the beneficiary's undergraduate tuition and required fees at a general academic teaching institution, two-year institution of higher education, private or independent institution of higher education, or accredited out-of-state institution of higher education.
(15) "Prepayment" means payment of the balance due or a portion of the balance due under a prepaid tuition contract, ahead of the schedule provided in the contract.
(16) "Private or independent institution of higher education," "public junior college," "public state college," "public technical institute," and "recognized accrediting agency" have the meanings assigned by Education Code, §61.003.
(17) "Program" or "Plan" means the prepaid tuition unit undergraduate education program. The board may select a different name for the program for marketing purposes.
(18) "Purchaser" means a person who enters into a prepaid tuition contract with the board on behalf of a beneficiary for the purchase of one or more tuition units.
(19) "Redemption" means the exchange of one or more tuition units to pay costs of tuition and required fees at an eligible educational institution.
(20) "Reduced Refund Value" means the lesser of:
(A) the amount paid by the purchaser or other contributor to purchase any unused tuition units under the contract on behalf of the beneficiary; or
(B) the current market value of the invested payments or contributions for any unused tuition units, as determined by the plan manager. Reduced Refund Value does not include any state provided or procured matching contributions or any earnings on state provided or procured matching contributions.
(21) "Refund Value" means an amount equal to the total purchase price of the unused tuition units to be refunded from the account, plus annual net earnings on the contributions made to the account to purchase the tuition units that are being refunded (including any negative returns), with the earnings rate to be set by the board at a rate that is up to two percent less than the actual investment return for the fund for each of the years the contract is in effect, provided that in no event shall the annual net earnings on the contributions ever exceed five percent annually, and provided further that for any year in which the investment return does not support payment of any earnings, the board may elect not to credit and pay any earnings on the contributions, to preserve the actuarial soundness of the fund. Refund Value does not include any state provided or procured matching contributions or any earnings on State provided or procured matching contributions.
(22) "Required fee" means a fee, other than a laboratory fee for a specific course, that is charged by a public or private institution of higher education to all students at the institution who are not exempt from the fee. For purposes of this subdivision, a fee is a required fee only to the extent that the fee is considered a qualified higher education expense under Internal Revenue Code, §529. Required fees are generally those fees imposed on all students as a condition of enrollment. Required fees do not include fees such as equipment usage fees required for particular courses, charges for room and board, book costs, or any optional fees.
(23) "Sales period" means the year long period from September 1 through August 31 during which a purchaser who has established a prepaid tuition contract may make purchases under the contract at the price(s) established under the contract, or at the price established for tuition units applicable to the sales period if additional tuition units are purchased during the sales period.
(24) "Three-year holding period" means the period of time that must transpire before a beneficiary or purchaser may redeem a tuition unit to pay for qualified higher education expenses, as provided under §7.125(g) of this title (relating to Redemption of Tuition Units).
(25) "Transfer value" means the value of the prepaid tuition contract at the time of transfer, that is the lesser of:
(A) an amount equal to the cost, at the time of the transfer, of the tuition and required fees that would be covered by redemption of the number and type of tuition units to be transferred from the account (but not including any units resulting from any State provided or procured matching funds) if the beneficiary were redeeming the units at a general academic teaching institution or two-year institution of higher education as follows:
(i) for a Type I unit, at the general academic teaching institution that, in the sales year in which the unit was purchased, had the highest tuition and required fee cost;
(ii) for a Type II unit, at a general academic teaching institution that, in the sales year in which the unit was purchased, had tuition and required fee cost at the weighted average; and
(iii) for a Type III unit, at a two-year institution of higher education that, in the sales year in which the unit was purchased, had tuition and required fee cost at the weighted average; or
(B) an amount equal to the current market value of the unused tuition units to be transferred from the account, which is an amount equal to the total purchase price of the unused tuition units to be transferred from the account (but not including any state provided or procured matching contributions), plus the portion of the total net earnings on assets of the Fund attributable to that amount (including any negative returns), but not including any earnings on state provided or procured matching contributions, as determined by the plan manager.
(26) "Tuition" means the charges imposed by a general academic teaching institution, two-year institution of higher education, private or independent institution of higher education, or accredited out-of-state institution of higher education, on undergraduates as a condition of enrollment, which are identified by such institution as tuition.
(27) "Tuition unit" means a portion of the cost of undergraduate resident tuition and required fees that may be prepaid, whose assigned value, when used to pay the cost of tuition and required fees at an eligible educational institution, is equal to:
(A) for a Type I tuition unit, one percent of the cost of undergraduate resident tuition and required fees for one academic year consisting of 30 semester hours charged by the general academic teaching institution with the highest such tuition and fee costs for the academic year in which the unit is redeemed, determined as provided by Education Code, §54.753(d);
(B) for a Type II tuition unit, one percent of the weighted average cost of undergraduate resident tuition and required fees for one academic year consisting of 30 semester hours charged by general academic teaching institutions for the academic year in which the unit is redeemed, determined as provided by Education Code, §54.753(e); or
(C) for a Type III tuition unit, one percent of the weighted average cost of undergraduate resident tuition and required fees for one academic year consisting of 30 semester hours charged by two-year institutions of higher education for the academic year in which the unit is redeemed, determined as provided by Education Code, §54.753(f).
(28) "Two-year institution of higher education" means a public junior college, a public state college, and a public technical institute, as those terms are defined in Education Code, §61.003.
(29) "Weighted average" with respect to tuition and required fees means:
(A) for Type II tuition units, a weighted average cost for undergraduate resident tuition and required fees of general academic teaching institutions for the applicable academic year, computed by the method specified in Education Code, §54.753(e); and
(B) for Type III tuition units, a weighted average cost for undergraduate resident tuition and required fees of two-year institutions of higher education for the applicable academic year, computed by the method specified in Education Code, §54.753(f).
§7.123.Tax Exempt Status Requirements.
(a) The provisions of this section are intended to meet the requirements of Internal Revenue Code, §529.
(b) A payment of an amount due to the fund for a prepaid tuition contract must be made in cash or cash equivalent. A person may not make a payment to the fund (regardless of whether such payment is a direct purchase, gift, contribution under the Texas Save & Match program, or other payment) to the extent that any such payment with respect to a beneficiary, when aggregated with the other Internal Revenue Code, 529 Plans for such beneficiary, would exceed the contribution limits of Internal Revenue Code, §529.
(c) The plan manager will monitor contributions to and withdrawals from the fund and any account within the fund to ensure that any applicable limits on contributions or withdrawals are not exceeded.
(d) The plan manager shall maintain a separate accounting for each beneficiary.
(e) The plan manager shall determine the earnings portion of each distribution, if any, in accordance with methods that are consistent with Internal Revenue Code, §529.
(f) The plan manager shall report the earnings portion of any distribution or refund on a statement to the purchaser or other distributee as appropriate, and to the Secretary of the United States Treasury, as may be required by the Internal Revenue Code, §529.
(g) The purchaser and beneficiary under the prepaid tuition contract, and any other contributor, may not:
(1) control or direct the investment of payments under the contract or any earnings of the fund; or
(2) use any interest in the contract as security or collateral for a loan or other obligation.
(h) The board and plan manager shall make such reports as the Secretary of the United States Treasury may require to maintain compliance with Internal Revenue Code, §529.
(i) Policies and procedures. As authorized under Education Code, Chapter 54, Subchapters F, G, and H, the board may adopt any policy or procedure, and such policy and procedure automatically amends each outstanding prepaid tuition contract, as necessary for:
(1) the prepaid tuition contract to obtain or maintain qualification as a qualified tuition program under Internal Revenue Code, §529;
(2) purchasers and beneficiaries to obtain and maintain the federal income tax benefits or favorable treatment that is provided by Internal Revenue Code, §529; or
(3) the prepaid tuition contract to obtain or maintain exemption from registration under federal securities law. If outstanding prepaid tuition contracts are automatically amended as a result of this rule, purchasers will be notified of the amendment through the Internet web site of the program.
§7.124.Prepaid Tuition Units: Purchase; Assigned Value; Types; Price.
(a) Under the program, a purchaser may prepay the costs of all or a portion of a beneficiary's undergraduate tuition and required fees at an eligible educational institution by entering into a prepaid tuition contract with the board to purchase one or more tuition units of a type described by this section at the applicable price established by the board for that type of unit for the year in which the unit is purchased.
(1) The portion of the beneficiary's undergraduate tuition and required fees for which a tuition unit may be redeemed is assigned to the tuition unit at the time of purchase.
(2) Tuition unit(s) may be redeemed to pay that portion of the tuition and fees at the general academic teaching institution or two-year institution of higher education in any academic year in which the unit is redeemed in accordance with this subchapter.
(3) The purchaser may purchase one type of unit or a combination of two or three types of units.
(b) The assigned value of a tuition unit, purchased as provided by this section, when used to pay the cost of tuition and required fees, is equal to one percent of the amount necessary for the academic year in which the unit is redeemed to cover the applicable cost of undergraduate resident tuition and required fees for one academic year consisting of 30 semester credit hours as follows:
(1) for a Type I tuition unit, the cost of undergraduate resident tuition and required fees charged by the general academic teaching institution with the highest such tuition and fee costs, determined as provided by subsection (d) of this section;
(2) for a Type II tuition unit, the weighted average undergraduate resident tuition and required fees charged by general academic teaching institutions, determined as provided by subsection (e) of this section; and
(3) for a Type III tuition unit, the weighted average undergraduate resident tuition and required fees of two-year institutions of higher education, determined as provided by subsection (f) of this section.
(c) Each year, the board will establish the price at which each type of tuition unit may be purchased during the next sales period and the percentage of the total cost of undergraduate resident tuition and required fees for one academic year consisting of 30 semester credit hours for which each type of tuition unit may be redeemed at each general academic teaching institution and two-year institution.
(1) The percentage will be based on the total cost of required tuition and fees at a particular general academic teaching institution or two-year institution of higher education in relation to the amount determined for the institution with the highest cost or weighted average cost, as applicable.
(2) The purchase price established for each type of unit will be equal to the applicable cost of tuition and required fees as determined under this section for the most recent academic year that began before the beginning of the sales period.
(3) The sales period to which those prices apply expires on the first anniversary of the date the units become available for purchase at the prices established for that year.
(4) Revisions to the purchase price established for each type of unit will be published in the Texas Register and on the board's Internet web site and shall apply to prepaid tuition contracts entered into on or after the effective date for the new price set by the board.
(d) The board shall base the purchase price of a Type I tuition unit on one percent of the cost of the undergraduate resident tuition and required fees for the applicable academic year at the general academic teaching institution with the highest such tuition and fee cost for that academic year.
(e) The board shall base the purchase price of a Type II tuition unit on one percent of the cost of the Weighted Average tuition and required fees of general academic teaching institutions for the applicable academic year. That cost is determined by:
(1) for each general academic teaching institution, multiplying the average amount of the institution's undergraduate resident tuition and required fees for an academic year consisting of 30 semester credit hours by the number of full-time equivalent undergraduate resident students at that institution;
(2) adding together the products computed under paragraph (1) of this subsection, for each institution; and
(3) dividing the sum determined under paragraph (2) of this subsection, by the total number of full-time equivalent undergraduate resident students at all general academic teaching institutions.
(f) The board shall base the purchase price of a Type III tuition unit on one percent of the cost of the Weighted Average tuition and required fees of two-year institutions of higher education for the applicable academic year, disregarding any portion of the tuition charged by a public junior college to a resident of this state who does not reside within the taxing jurisdiction of the junior college. That cost is determined by:
(1) for each two-year institution of higher education, multiplying the average amount of the institution's undergraduate resident tuition and required fees for an academic year consisting of 30 semester credit hours by the number of full-time equivalent undergraduate resident students at that institution;
(2) adding together the products computed under paragraph (1) of this subsection, for each institution; and
(3) dividing the sum determined under paragraph (2) of this subsection, by the total number of full-time equivalent undergraduate resident students at all two-year institutions of higher education.
(g) For the purposes of determining the cost of tuition and required fees at an eligible educational institution, if the tuition and required fees vary at an institution by the particular college or program area at the institution or campus, the tuition and required fees for those programs will be considered separately in calculating the weighted average costs for Type II and III tuition units and the price for Type I tuition units.
(h) The board will establish, in compliance with Internal Revenue Code, §529, the minimum amount that the purchaser is required to pay under the contract on behalf of a single beneficiary. The initial minimums set forth in this subsection may be periodically changed by the board as needed to maintain compliance with Internal Revenue Code, §529, or to maintain the actuarial soundness of the fund.
(1) The minimum number of tuition units that must be purchased to establish a new prepaid tuition contract using a Pay-As-You-Go purchase is one. Additional tuition units or fractional units may be added to an existing prepaid tuition contract by periodic Pay-As-You-Go purchases of a minimum of $15 each.
(2) The minimum number of tuition units that must be contracted for purchase to establish a new prepaid tuition contract using an installment plan is 25 Type I tuition units or 50 Type II or III tuition units. Additional tuition units or fractional units beyond the initial installment contract amount may be purchased by periodic Pay-As-You-Go purchases of a minimum of $15 each and credited to the same beneficiary in a new or amended contract under the existing enrollment. The purchaser does not have to wait until a new enrollment period to add tuition units through Pay-As-You-Go purchases.
(3) The minimum for an Automated Clearing House (ACH) payment is $15.
(i) The maximum number of tuition units that may be purchased and assigned to a single beneficiary is 600 Type I units or an approximate equivalent in Type II or III units.
(j) At the time of the establishment of the account to which a purchaser's prepaid tuition contract money is assigned, the board may impose an administrative fee not to exceed $25. The administrative fee may be imposed only once for an account established for the same purchaser and beneficiary, regardless of the number of account upgrades, contracts, or payment plans later established by the purchaser for that same beneficiary. Money from that fee will be used directly in maintaining the actuarial soundness of the fund as required by Education Code, §54.770.
§7.125.Redemption of Tuition Units.
(a) In accordance with this subchapter, when a beneficiary under a prepaid tuition contract redeems tuition units to pay costs of tuition and required fees, the board shall apply money in the Fund, in the amount provided by Education Code, §54.765, to pay all or the applicable portion of the costs of the beneficiary's tuition and required fees at the general academic teaching institution, two-year institution of higher education, private or independent institution of higher education, or accredited out-of-state institution of higher education in which the beneficiary enrolls.
(1) Subject to subsection (c)(2) of this section, and the other provisions of this section, a beneficiary may redeem any type of tuition unit or partial tuition unit for attendance at an institution described by this section.
(2) A general academic teaching institution or two-year institution of higher education shall accept the amount transferred to the institution under Education Code, §54.765(c), when the unit or units are redeemed as payment for all or the applicable portion of the beneficiary's tuition and required fees.
(b) To pay for the entire cost of undergraduate resident tuition and required fees for an academic year consisting of 30 semester credit hours:
(1) redemption of 100 Type I tuition units (or an approximate equivalent amount of Type II or III units) is required at the general academic teaching institution with the highest tuition and fee cost as described by Education Code, §54.753(d);
(2) redemption of 100 Type II tuition units (or an approximate equivalent amount of Type I or III units) is required at a general academic teaching institution with the applicable tuition and fee cost at the Weighted Average as described by Education Code, §54.753(e); and
(3) redemption of 100 Type III units (or an approximate equivalent amount of Type I or II units) is required at a two-year institution of higher education with the applicable tuition and fee cost at the Weighted Average as described by Education Code, §54.753(f).
(c) The number of tuition units that must be redeemed to pay for the entire cost of tuition and required fees for an academic year at another general academic teaching institution or two-year institution of higher education may be higher or lower:
(1) in proportion to the amount that the cost of tuition and required fees at that institution is higher or lower than the amount determined for the institution with the highest cost or Weighted Average cost, as applicable; or
(2) if a more or less valuable type of tuition unit is redeemed.
(d) To assist purchasers in determining the number of tuition units a beneficiary must redeem to cover the costs of tuition and required fees at general academic teaching institutions and two-year institutions of higher education, each year the board shall prepare a tuition unit redemption chart and will post the chart on the board's Internet website. The chart will show for each general academic teaching institution and for each two-year institution of higher education the number of each type of units purchased that year that would be required to cover the cost of tuition and required fees, based on an academic year consisting of 30 semester credit hours.
(1) The exact amount of tuition units that will be required to attend a particular institution will depend upon the cost of tuition and required fees at the institution in the year of redemption.
(2) For Type I tuition units, the number of units required to attend a particular institution may be less than anticipated when purchased if that institution's costs are less than the general academic teaching institution with the highest tuition and fee cost in the year of redemption.
(3) For Type II and III tuition units, the number of units required to attend a particular institution may be more or less than anticipated when purchased, and will depend on whether that institution's costs are higher or lower than the Weighted Average cost in the year of redemption. To the extent the cost of a particular institution is higher than the Weighted Average cost, the beneficiary will have to redeem additional tuition units to cover the higher cost, or pay the amount of the difference as provided in subsection (e) of this section.
(e) If a beneficiary redeems fewer tuition units of the type or combination of types necessary to pay the total cost of the beneficiary's tuition and required fees at the general academic teaching institution, two-year institution of higher education, private or independent institution of higher education, or accredited out-of-state institution of higher education at which the beneficiary enrolls, the beneficiary is responsible for paying the amount of the difference between the amount of tuition and required fees for which the beneficiary pays through the redemption of one or more tuition units and the total cost of the beneficiary's tuition and required fees at the institution.
(f) A beneficiary who redeems Type III tuition units (or an approximate equivalent amount of Type I or II units) to attend a public junior college and who does not reside within the taxing jurisdiction of the junior college is responsible for paying any portion of the tuition charged by the junior college to persons who do not reside within that taxing jurisdiction.
(g) A beneficiary or purchaser may not redeem a tuition unit earlier than the third anniversary of the date the unit was purchased.
(1) For the purpose of calculating the three-year holding period for an initial Pay-As-You-Go purchase, the first payment due date after initially enrolling in the program is considered the date the initial units were purchased. These units may not be redeemed to pay for tuition and required fees until the third anniversary after the payment due date.
(2) For installment plan payments, the three-year holding period is considered met if the purchaser enrolls in the program and the first payment due date is at least three years prior to any redemption of tuition units, and the installment plan is paid in full before redemption of any of the tuition units.
(3) Additional Pay-As-You-Go purchases start a new three-year holding period as of the date payment is received for the additional tuition units.
(4) Under the three-year holding period, the latest date that a purchaser could purchase tuition units to pay for a semester of undergraduate education using Pay-As-You-Go purchases is three years prior to the date of expected redemption of the tuition units, subject to the requirement that all tuition units under the contract must be used not later than the10th anniversary of the date the beneficiary is projected to graduate from high school, not counting time spent by the beneficiary as an active duty member of the United States armed services.
(5) If all of the tuition units in an account do not meet the three-year holding period, the purchaser may redeem those units or fractional units that meet the three-year holding period, and redeem the remaining tuition units in the account when the three-year holding period is met.
(h) A beneficiary may redeem more than 100 tuition units in one academic year of the type or combination of types as needed to pay the total cost of the beneficiary's tuition and required fees at an eligible educational institution.
(i) To accommodate part-time attendance or the enrollment in more or less semester hours than the contemplated 30 credit hours in an academic year, the board may calculate a per credit hour tuition unit cost for the eligible educational institution applicable to the year of redemption, whereby the number of tuition units required to be redeemed shall be in proportion to the amount that tuition and required fees to be charged to the beneficiary by the eligible educational institution are more or less costly than the cost for attending two semesters of 15 credit hours each or 30 total credit hours in an academic year.
(j) A beneficiary may redeem fractional tuition units as needed to pay the cost of the beneficiary's tuition and required fees at an eligible educational institution.
§7.126.Prepaid Tuition Contract.
(a) To apply for enrollment in the program, a purchaser shall complete and submit a prepaid tuition contract form, approved by the board.
(b) A purchaser shall provide the following information on the form:
(1) the name, address, social security number or tax identification number of the purchaser;
(2) name, date of birth and social security number of the beneficiary, or in the case of a newborn, provide proof of an application for a social security number through the Social Security Administration;
(3) the date the beneficiary is projected to graduate from high school;
(4) a certification indicating that the purchaser is eligible to enroll in the program because either the beneficiary or a parent of the beneficiary is a resident of this state, as provided in §7.127 of this title (relating to Purchaser; Beneficiary);
(5) how the purchaser intends to finance the prepaid tuition contract;
(6) the name of any person who shall have a right of survivorship with respect to the purchaser's rights under the prepaid tuition contract;
(7) the annual gross household income of the purchaser;
(8) the highest educational level achieved by the purchaser;
(9) the race or ethnicity of the beneficiary; and
(10) how the purchaser first learned about the program.
(c) The prepaid tuition contract shall specify:
(1) the name, address, social security number or tax identification number of the purchaser;
(2) the terms under which the purchaser must pay any amounts owed under the contract;
(3) the consequences of default;
(4) the name, date of birth, and social security number of the beneficiary under the contract, provided that the board may allow additional time for the purchaser to obtain the social security number of a newborn;
(5) the terms under which another person may be substituted as the beneficiary;
(6) the date the beneficiary is projected to graduate from high school;
(7) the name of any person designated by the purchaser who shall have a right of survivorship with respect to purchaser's rights under the prepaid tuition contract;
(8) the name of any person who may terminate or cancel the contract;
(9) the terms under which the contract may be terminated or cancelled;
(10) the terms under which the purchaser is entitled to a refund;
(11) the method by which the amount of the refund is computed; and
(12) other provisions the board considers necessary or appropriate.
(d) The prepaid tuition contract may provide for the purchase of additional tuition units in subsequent years at the then-current price of the additional units.
(e) The prepaid tuition contract may also provide for the purchase of additional units in subsequent years through the Texas Save and Match program or through gift or other contributions by persons on behalf of a beneficiary, at the then-current price of the additional units at the time a contribution is made.
§7.127.Purchaser; Beneficiary.
(a) A purchaser may be any person who is permitted to be a purchaser under Internal Revenue Code, §529. The purchaser is not required to be a resident of this state, except as provided by subsection (d)(2) of this section.
(b) A purchaser is the owner of the account to which the purchaser's prepaid tuition contract money is assigned.
(c) A prepaid tuition contract may be established by one purchaser at the time it is established during enrollment, and thereafter it shall have only one purchaser as owner except when owned by more than one individual, trust, estate, or UGMA/UTMA custodian, guardian, corporation, non-profit entity, or other legal entity (or any combination thereof) as a result of a transfer by operation of law.
(d) At the time the purchaser enters into a prepaid tuition contract, the beneficiary of the contract must be:
(1) a resident of this state; or
(2) a nonresident who is the child of a parent who is both a resident of this state and the purchaser of the contract.
(e) Notwithstanding any provision of Education Code, Chapter 54, Subchapter B, tuition and required fees charged by a general academic teaching institution or two-year institution of higher education that are paid for with tuition units, shall be determined as if the beneficiary of that contract were a resident student.
§7.128.Contract Payment.
(a) Payments under prepaid tuition contracts may be made in single or periodic Pay-As-You-Go payments, or under an installment plan, or both. The first payment due date for a newly enrolled purchaser is May 1, or as may be otherwise established by the board for subsequent enrollment periods.
(b) For payments under a contract to be made in installments over a period longer than one year, those payments can be made in annual, or monthly installments, in accordance with any permitted installment plans established by the board.
(1) Monthly installment plans shall include as a minimum: monthly installments to matriculation, a 10-year installment plan, and a 5-year installment plan.
(2) Annual installment plans include annual installments to matriculation, a 5-year installment plan, or a 10-year installment plan.
(3) Installment payments shall be due on the 1st of the month.
(4) Installment payments shall include an implied interest component at a rate set by the board to ensure the actuarial soundness of the fund.
(5) Installment plans must be paid in full prior to redemption of any units purchased by the installment plan.
(6) Under an installment plan, the basic unit price will not change over the life of the installment agreement, unless the agreement is later amended. The tuition unit price for new installment plans to be entered into during later enrollment periods will be adjusted by the board to reflect the then effective base tuition unit price and an updated implied interest component at a rate applicable to the new installment plans.
(7) A purchaser may initially establish both an installment plan contract and a Pay-As-You-Go contract when enrolling in the program, but the contract payments will be tracked separately. The purchaser will receive one combined account statement reflecting all payments under the different payment plans for the same purchaser and same beneficiary.
(c) There shall be no prepayment penalty imposed if a purchaser pays off an installment plan ahead of the schedule outlined in the prepaid tuition contract. Prepayments may result in a credit toward any monies due to reflect that the prepaid tuition contract was paid off early. Prepayments may be applied to reduce the outstanding contract balance, reduce the amount or number of monthly payments, or to make monthly payments ahead of schedule, at the option of the purchaser. In the absence of direction from the purchaser, prepayments will be applied to reduce the outstanding contract balance.
(d) The price for tuition units purchased using Pay-As-You-Go payments shall be the tuition unit price established by the board in accordance with §7.124 of this title (relating to Prepaid Tuition Units: Purchase; Assigned Value; Types; Price), for the sales period in which the tuition unit was purchased. If additional Pay-As-You-Go payments are made to purchase additional tuition units under a pre-existing prepaid tuition contract, the prepaid tuition contract shall be automatically amended to incorporate the additional tuition units purchased and the additional tuition units shall be credited to the existing account.
(e) A purchaser may make payments under a prepaid tuition contract by check, money order, electronic funds transfer, or payroll deduction. A purchaser may change payment methods. Credit cards may not be used to purchase tuition units.
(f) A purchaser may make payments under a prepaid tuition contract by payroll deduction, under procedures developed by the board and the comptroller to facilitate payments.
(1) To facilitate the establishment of payroll deductions by public employees, the board may extend the enrollment period as necessary to accommodate the employee benefit open enrollment period of the state or a political subdivision of the state during which payroll deductions are normally established.
(2) A purchaser electing to make payments under a prepaid tuition contract by payroll deduction shall specify whether the payments should be applied to pay for purchases under an installment plan or to make regular Pay-As-You-Go purchases.
(3) The purchase price for tuition units to be purchased by payroll deduction shall be based on:
(A) for payments under an installment plan, the price in effect for the sales period when the first tuition unit payment is or was received, regardless of the date the employee enrolls in payroll deduction; or
(B) for Pay-As-You-Go purchases, the price in effect for the sales period when each payment is actually received.
(g) Upgrades. Upgrades to an existing prepaid tuition unit account are allowed. An upgrade of an account is defined as adding additional tuition units to the account beyond the units specified in the original or existing prepaid tuition contract, by amending the contract or adding a new contract to the account.
(1) Pay-As-You-Go purchases of additional tuition units can be added to an existing Pay-As-You-Go contract without amending the contract. A new three-year holding period for tuition unit redemptions begins for new Pay-As-You-Go purchases.
(2) Pay-As-You-Go purchases of additional tuition units can be added to an existing enrollment that has a pre-existing installment plan contract, at any time during the sales period. However, Pay-As-You-Go purchases will be under a new contract and tracked separately from the installment plan purchases for implementation of the three-year holding period. The purchaser will receive a single account statement reflecting all payment plans under the account.
(3) The payment timeframe of an existing installment plan contract may be extended by contract amendment so long as the amended contract calls for payment in full prior to redemption of any of the tuition units. Other upgrades to an existing installment plan will also be performed by contract amendment.
(4) An installment plan contract may be added to an existing account that is set up as a Pay-As-You-Go plan contract, but only during an enrollment period. The new installment plan will be considered a separate contract from the Pay-As-You-Go contract. The installment plan for additional units will be priced at the tuition unit prices in effect on the date when the plan manager receives and accepts a signed new contract from the purchaser to acquire the additional tuition units. Both payment plans will be reflected on a single account statement for the purchaser.
(5) A purchaser can have multiple payment plans in a single beneficiary account but the aggregate amount should not exceed the limit of 600 Type I tuition unit equivalents per beneficiary.
(h) Downgrades. A prepaid tuition unit contract may be downgraded without terminating the contract. A downgrade of an account is defined as agreeing to purchase fewer tuition units than originally specified in the original contract.
(i) The board may impose a fee for a late payment under a prepaid tuition contract.
(j) The purchaser will also bear the cost if a purchaser's attempted payment is refused by a financial institution.
§7.129.Deferred Use of Prepaid Credit Hours.
(a) A prepaid tuition contract will allow a beneficiary:
(1) to elect to pay from a source other than tuition units purchased under the contract the beneficiary's tuition and required fees for some or all of the tuition and required fees to which the beneficiary is entitled to payment under the contract; and
(2) to defer to a subsequent semester or other academic term the right to payment of the beneficiary's tuition and required fees by using tuition units remaining under the contract.
(b) This section does not affect the date on which a prepaid tuition contract terminates and does not give the beneficiary the right to a payment under the contract after termination of the contract.
§7.130.Change of Beneficiary.
(a) The purchaser of a prepaid tuition contract may designate a different beneficiary in place of the original beneficiary subject to the following conditions:
(1) the new beneficiary must meet the requirements of a beneficiary under §7.127 of this title (relating to Purchaser; Beneficiary), on the date the designation is changed;
(2) the new beneficiary must meet the requirements of Internal Revenue Code, §529 (such as being a member of the family of the former beneficiary, as defined by §529(e)(2)), to prevent the change of beneficiary from being treated as a distribution under that law;
(3) documentation must be submitted evidencing the relationship between the replacement beneficiary and the former beneficiary; and
(4) the terms of the contract may be adjusted so that the purchaser is required to pay the amount the purchaser would have been required to pay had the purchaser originally designated the new beneficiary as the beneficiary, taking into account any payments made before the date the designation is changed.
(b) Amounts paid before the beneficiary is changed shall be credited against amounts due at the time of the change. If the amount due at the time of the change is less than the amount paid prior to the change, such amount shall be credited against other amounts due through the term of the contract. If the amount paid prior to the change exceeds the amounts due through the term of the contract, the amount in excess of the amounts due shall be refunded to the purchaser.
(c) A purchaser must submit a properly signed request form approved by the board to change a beneficiary.
(d) A fee will not be imposed in connection with the designation of a new beneficiary under this subchapter.
(e) The purchaser of a prepaid tuition contract may not sell the contract.
§7.131.Purchaser Obligations and Requests.
(a) The purchaser is the person who is obligated to make payments under a prepaid tuition contract.
(b) Unless otherwise provided in this subchapter, the purchaser shall execute all prepaid tuition contract changes, conversions, transfers, terminations and refund requests.
(c) Any request to change a purchaser, change a beneficiary, or terminate a contract, must be submitted in a writing signed by the purchaser.
(d) A purchaser may designate in writing to the board on the enrollment form, or in a separate written request, a person with a right of survivorship in the event of the purchaser's death. However, until the rights under the contract pass to the designee, such designee has no right to direct decisions regarding contract changes, conversions, transfers or termination. Without limitation on the foregoing, the contract may be modified or terminated by, or refund disbursed to, the purchaser without the consent or authorization of a designee of survivorship rights. It is the purchaser's responsibility to update the survivorship information as appropriate.
§7.132.No Promise or Guarantee of Admission.
Nothing in this subchapter or the program should be construed as a promise or guarantee that a beneficiary will be:
(1) admitted to any public or private institution of higher education;
(2) admitted to a particular public or private institution of higher education;
(3) allowed to continue enrollment at a public or private institution of higher education; or
(4) graduated from a public or private institution of higher education.
§7.133.Contract Termination.
(a) The prepaid tuition contract may be terminated by the board:
(1) if the board determines that a purchaser has misrepresented residency, age, or other information required by the board in connection with the purchase of a contract;
(2) upon default for failure to pay any amounts due under the prepaid tuition contract prior to the expiration of any applicable grace periods as outlined in §7.134 of this title (relating to Default and Delinquency Conversion), unless such contract is converted to a Pay-As-You-Go contract; or
(3) if the purchaser fails to provide a valid social security account number or other applicable tax identification number for the purchaser or beneficiary within six months of enrollment.
(b) At its option, a purchaser may voluntarily cancel a prepaid tuition contract upon submission of a proper written request signed by the purchaser.
(c) A prepaid tuition contract terminates automatically on the tenth anniversary of the date the beneficiary was projected to graduate from high school, as indicated by the purchaser in the enrollment contract.
(1) For the purpose of this subsection, the date the beneficiary is projected to graduate from high school includes the projected completion of a nontraditional secondary education, such as obtaining a general education development certificate, certificate of high school equivalency, or other credentials equivalent to a public high school degree, as indicated by the purchaser in the enrollment contract.
(2) Time spent as an active duty member of the United States armed services shall toll the ten-year anniversary period.
(3) If there is a change of beneficiary, the ten-year anniversary period is calculated based on the projected high school graduation date of the new beneficiary, as indicated in the enrollment contract or change of beneficiary form.
(4) If a contract has been terminated automatically, the plan manager will make a reasonable effort to locate the purchaser for the purpose of processing a refund.
(5) Until the purchaser is located or the purchaser applies for a refund, any unused monies from the account will remain in the Fund to support the actuarial soundness of the Fund.
(6) Once a contract has been terminated automatically, the account will cease to accrue any further net earnings as of the date the contract has been terminated.
(d) Refunds for cancellations or terminations will be governed by §7.135 of this title (relating to Refunds).
§7.134.Default and Delinquency Conversion.
(a) An account is subject to a late payment penalty for payments not received within 15 days of the payment due date.
(b) If no payments are received within 90 days of the first payment due date under a newly established account, the account is in default and will be cancelled.
(c) Failure to make any payment within 30, 60, or 90 days of the due date will result in the plan manager sending out a delinquency notice. A late payment penalty will be assessed in each instance, and the failure to make timely payment will be considered a default.
(d) If a default has not been cured within 90 days of the outstanding payment default date, the plan manager will send out a default notice advising the purchaser that the contract will be converted in 30 days if not properly cured by the purchaser.
(e) A purchaser may cure the default status of its prepaid tuition contract prior to the expiration of 120 days after the payment default date, subject to payment of all the delinquent amounts and any fees specified in the board's fee schedule. A contract that is not cured within 120 days after default shall be converted from an installment plan to a "Pay-As-You-Go" contract reflecting the number of tuition units paid for at the time of the conversion, less any outstanding fees. Any future purchases under the contract will reflect the prices in existence at the time of purchase. If the purchaser wishes to establish another installment plan at a later date after a contract has been converted, the purchaser must wait until the next enrollment period to do so.
(f) Failure to make timely payments for 6 consecutive or non-consecutive months out of a 12 month period may also result in termination of the installment plan and conversion of the contract to a Pay-As-You-Go contract.
(g) Any refund in the event of a default shall be limited to the Reduced Refund Value as governed by the provisions related to contract termination in §7.135 of this title (relating to Refunds).
§7.135.Refunds.
(a) Refunds shall be made in accordance with provisions of this subchapter and the prepaid tuition contract, in a manner that will not adversely affect the tax status of the program under applicable provisions of Internal Revenue Code, §529. Refunds shall be governed by this subchapter as amended and Internal Revenue Code, §529, as in effect on the date the request for refund is submitted to the plan manager.
(b) Earnings may be paid with a refund only if the board determines that such payment will not adversely affect the actuarial soundness of the fund to pay the costs of program administration and operations and to meet the obligations of the program, as provided by Education Code, §54.770. It is the board's intent that refund amounts will be based on the definitions of "Refund Value," "Reduced Refund Value," or "Transfer Value," in §7.122 of this title (relating to Definitions), as applicable.
(c) The purchaser is entitled to a refund following cancellation or termination of a prepaid tuition contract, subject to any limitations imposed by Internal Revenue Code, §529, this subchapter, and the provisions of the prepaid tuition contract.
(d) Refunds shall be made to the purchaser of the prepaid tuition contract or, in the event of the purchaser's death, the person designated in the enrollment contract or other legal document to have the right of survivorship.
(e) Should a beneficiary terminate his/her student status on or after the date on which the institution denies refunds to students withdrawing for a particular semester, no refund shall be paid under the prepaid tuition contract for amounts relating to such semester.
(f) If the prepaid tuition contract is cancelled due to the death or disability of the beneficiary, or due to the receipt of a scholarship by the beneficiary, the purchaser may elect to change the beneficiary or apply for a refund of the Refund Value of the account, less any fees due and payable to the program under the board's fee schedule. The administrative fee will be retained by the program.
(g) If the beneficiary redeems fewer tuition units to pay the cost of tuition and required fees than the number of units purchased on behalf of the beneficiary under a prepaid tuition contract, other than to defer redemption as permitted in accordance with Education Code, §54.758, the purchaser may request a refund of the Refund Value of the account, less any fees due and payable under the contract, or transfer the remaining units to another beneficiary in accordance with this subchapter. The administrative fee will be retained by the board.
(h) If the beneficiary decides not to attend an institution of higher education within a reasonable amount of time after graduating from high school, the purchaser may elect to:
(1) change the beneficiary to another eligible beneficiary;
(2) hold the tuition units in the account until the 10th anniversary of the date the beneficiary was projected to graduate from high school, not counting time spent by the beneficiary as an active duty member of the United States armed services; or
(3) cancel the contract and request a refund of the Refund Value of the account, less any fees due and payable to the program. The administrative fee will be retained by the board.
(i) If the prepaid tuition contract is terminated due to misrepresentation, failure to provide required information or default, the purchaser may apply for a refund of the Reduced Refund Value of the account, less any fees due and payable to the program under the board's fee schedule. The administrative fee will be retained by the program.
(j) If the prepaid tuition contract is terminated automatically due to expiration of the 10 year anniversary period specified in §7.133(c) of this title (related to Contract Termination), the purchaser may apply for a refund of the Refund Value of the account, less any fees due and payable to the program under the board's fee schedule. However, the Refund Value will be limited to include only net earnings that have accrued under the contract up until the date the contract has been terminated automatically.
(k) In the event of any other cancellation request not addressed separately in this subchapter:
(1) if the cancellation request is received prior to the third anniversary of the first payment due date, the purchaser may apply for a refund of the Reduced Refund Value of the account. The administrative fee will be retained by the board; or
(2) if the cancellation request is received on or following the third anniversary of the first payment due date, the purchaser may apply for a refund of the Refund Value of the account (for those tuition units held for three or more years) or the Reduced Refund Value (for tuition units held less than three years). The administrative fee will be retained by the board.
(l) A lump sum refund may be made within 60 days of receiving a properly completed signed request for refund from the purchaser on a form promulgated by the plan manager, along with any required supporting documentation. Proof of death, disability or scholarship shall be in a form acceptable to the board.
(m) Notwithstanding any other provision of this section, the purchaser may designate in the prepaid tuition contract a person who shall have a right of survivorship with respect to purchaser's rights under a prepaid tuition contract; provided that such designation shall in no way affect the purchaser's ability to modify or terminate the contract and receive a refund without the consent or authorization of the designee. The purchaser may change the designation at any time by properly completing and submitting to the plan manager a right of survivorship form. The purchaser shall provide any other information requested by the board in support of the designation. It is the purchaser's responsibility to provide the plan manager with current information for survivorship rights.
(n) Distributions or transfers to another qualified tuition plan are governed by §7.137 of this title (relating to Transfers Among 529 Plans) and Education Code, §54.7671.
(o) Refunds or distributions that exceed the qualified higher education expenses incurred by the beneficiary during the year of the distribution, or other nonqualified withdrawals, may subject the distributee to income tax liability on any earnings and a tax penalty, as provided by Internal Revenue Code, §529.
(p) The number of refunds per year for a single purchaser shall be limited to twice in a 12 month period and shall be for a minimum of 100% of the purchaser's tuition units or in increments of 25 units, whichever is less.
§7.136.Transfers to Institutions on Redemptions of Tuition Units.
(a) When a beneficiary enrolls at a general academic teaching institution or two-year institution of higher education and notifies the institution that payment will be made by redeemed tuition units, the comptroller will arrange for the transfer to the institution of the appropriate amount specified under Education Code, §54.765(c), (d) and (e).
(b) When a beneficiary enrolls at a private or independent institution of higher education or accredited out-of-state institution of higher education, upon request the comptroller will arrange for the transfer to the institution of the amount specified under Education Code, §54.765(f).
§7.137.Transfers Among 529 Plans.
(a) A purchaser may transfer money between an account under this subchapter and an account under another plan established by this state or by another state or other authorized entity in accordance with Internal Revenue Code, §529, to the extent and in the manner authorized by that section.
(b) The value of the account at the time of transfer is the Transfer Value less any fees due and payable under the contract.
(c) To apply for a transfer, the purchaser shall complete and submit a transfer request form promulgated by the board not later than 30 days prior to the desired effective date of the transfer. Upon request by the executive director, plan manager, or other designee, the purchaser shall provide any additional information necessary to properly effectuate the transfer.
(d) Any fees that are due and payable to the program under the board's fee schedule must be paid by the purchaser prior to the transfer.
(e) Transfers to another qualified tuition program for the benefit of a designated beneficiary are limited to one per 12-month period or as otherwise provided by Internal Revenue Code, §529.
§7.138.Recordkeeping for Certain Rollover Contributions.
(a) In the case of a rollover contribution from another qualified tuition plan, a Coverdell education savings account, or a qualified U.S. Savings Bond, the purchaser shall provide appropriate documentation and certifications to the plan manager to identify the source of the contribution, confirm that the contribution is a qualified rollover under Internal Revenue Code, §529, and to specify that portion of the contribution that is attributable to the purchaser's contributions or investment in the previous account and that portion of the rollover contribution that is attributable to earnings that were accumulated in the previous account. Rollovers must be completed within 60 days to avoid potential tax consequences.
(b) For a purchase of tuition units using a contribution from a direct transfer between 529 programs, such as a trustee-to-trustee rollover, the purchaser must arrange for the distributing program to provide to the plan manager a statement setting forth the earnings portion of the rollover distribution within 30 days after the distribution or by January 10th of the year following the calendar year in which the rollover occurred, whichever is earlier.
(c) Upon receipt of the rollover contribution, the plan manager will add the earnings portion of the rollover contribution to the earnings recorded under the prepaid tuition contract to which the rollover contribution is made.
(d) Until the plan manager receives appropriate documentation showing the earnings portion of the rollover contribution, the board will treat the entire amount of the contribution as earnings in the prepaid tuition contract receiving the distribution.
(e) For the purpose of this section, "appropriate documentation" means:
(1) in the case of a rollover contribution from a Coverdell education savings account, an account statement issued by the financial institution that acted as trustee or custodian of the education savings account that shows basis and earnings in the account;
(2) in the case of a rollover contribution from the redemption of qualified U.S. Savings Bonds, an account statement or Form 1099-INT issued by the financial institution that redeemed the bonds showing interest from the redemption of the bonds;
(3) in the case of a rollover contribution from another 529 program, a statement issued by the distributing 529 program that shows the earnings portion of the distribution; or
(4) other documentation acceptable to the board supported by the purchaser's certification.
§7.139.Actuarial Soundness of Fund.
(a) The board will administer the fund in a manner that is sufficiently actuarially sound to pay the costs of program administration and operations and to meet the obligations of the program.
(b) The board will annually evaluate the actuarial soundness of the fund.
(c) The board may adjust the terms of subsequent prepaid tuition contracts as necessary to ensure the actuarial soundness of the fund.
§7.140.Suspension of New Enrollment; Program Modification or Termination.
(a) On the request of the comptroller as the comptroller considers necessary to ensure the actuarial soundness of the fund, the board may temporarily suspend new enrollment in the program.
(b) If the comptroller determines that the program is financially infeasible, the comptroller shall notify the governor and the legislature and recommend that the program be modified or terminated.
§7.141.Effect of Program Termination on Contract.
(a) A prepaid tuition contract remains in effect after the program is terminated if, when the program is terminated, the beneficiary:
(1) has been accepted by or is enrolled at a general academic teaching institution, two-year institution of higher education, private or independent institution of higher education, or accredited out-of-state institution of higher education; or
(2) is projected to graduate from high school not later than the third anniversary of the date the program is terminated.
(b) A prepaid tuition contract terminates when the program is terminated if the contract does not remain in effect under subsection (a) of this section.
(c) For contracts that are terminated pursuant to subsection (b) of this section, the purchaser is entitled to a refund of the Refund Value, less any fees that are past due and payable to the program under the board's fee schedule.
§7.142.Statement Regarding Status of Prepaid Tuition Contract.
(a) Not later than January 1 of each year, the plan manager shall make available online without charge to each purchaser a statement of:
(1) the amount paid by the purchaser under the prepaid tuition contract;
(2) the total number of each type of tuition unit covered by the contract at any one time;
(3) the number of each type of tuition unit remaining under the contract;
(4) the number of each type of tuition unit that has met the three-year holding period;
(5) the value of the purchasers' tuition units if redeemed at any general academic teaching institution or two-year institution of higher education designated for that year by the purchaser in the time and manner required by the board, not to exceed five institutions, with such information being provided in the tuition unit redemption chart developed pursuant to §7.125(d) of this title (relating to Redemption of Tuition Units); and
(6) any other information the board determines is necessary or appropriate.
(b) As soon as feasible after the end of the calendar year, the plan manager shall provide a written statement without charge to each purchaser reflecting the information listed in subsection (a) of this section, covering activities in the account through the end of the calendar year.
(c) The plan manager shall provide a separate accounting for each designated beneficiary.
(d) The plan manager shall also provide a statement if tuition units are redeemed under the contract during the year, and if any other distributions are made under the contract that calendar year.
§7.143.Texas Save and Match Program.
(a) The board establishes the Texas Save and Match program under which money paid by a purchaser under a prepaid tuition contract may be matched with:
(1) contributions made by another person or entity to the Texas Save and Match program and used to purchase additional tuition units on behalf of the beneficiary; and
(2) money appropriated by the legislature for the Texas Save and Match program and used to purchase additional tuition units on behalf of certain beneficiaries.
(b) Beneficiaries eligible to receive matching contributions from money appropriated by the legislature for the Texas Save and Match program include:
(1) beneficiaries whose annual household income is below the state median family income, adjusted for household size;
(2) beneficiaries whose enrollment in the program would promote the participation goals and targets of the most recent revision of "Closing the Gaps," the state's master plan for higher education; or
(3) beneficiaries who meet other criteria that may be established by board rule.
(c) If a beneficiary does not qualify for a matching contribution from money appropriated by the legislature, the beneficiary may still receive a matching contribution that has been made and designated by another person or entity for that beneficiary.
(d) The board, or the executive director on behalf of the board, may solicit and accept gifts, grants, loans, and other aid from any source to benefit the Texas Save and Match program, the prepaid tuition program, other beneficiaries under the prepaid tuition program, or as otherwise indicated by the donor. Donations received by the board or executive director may be used to purchase tuition units, award scholarships, facilitate marketing or other implementation of the prepaid tuition program, or to fulfill other donor intent.
(e) Application Process and Forms.
(1) A person or entity desiring to make a matching contribution to a prepaid tuition contract shall complete and submit a matching contribution form promulgated by the executive director, along with any requested supporting documentation, in accordance with the instructions on the form.
(2) If money is appropriated by the legislature for the Texas Save and Match program, the board will establish an application process for purchasers to apply for matching contributions from the money appropriated for that purpose.
(f) Beneficiaries may be selected for a matching contribution by:
(1) the person or entity making the contribution; or
(2) the executive director, upon application of the purchaser demonstrating that the beneficiary meets the eligibility criteria established by the board under subsection (b) of this section, or by the executive director under subsection (d) of this section, to the extent of available funds for that purpose.
(g) The total amount paid and contributed to a prepaid tuition contract on behalf of a single beneficiary may not exceed the value equivalent of 600 Type I tuition units or any other limit that may be established by board policy and Internal Revenue Code, §529. The plan manager shall disallow any matching contributions on behalf of a designated beneficiary if the additional contribution would result in exceeding any limits established under this subsection.
(h) A person or entity making a matching contribution and any designated beneficiary may not directly or indirectly direct the investment of any contributions to, or earnings on, the account.
(i) Matching contribution payments may be made by check, money order, or electronic funds transfer.
(j) The plan manager shall keep records of contributions made under the Texas Save and Match program.
(k) Timing of matching contributions.
(1) Matching contributions may be made at any time after a purchaser has established an account within an enrollment period, to match any payments made by the purchaser during the sales period.
(2) Matching contributions may be used to help meet the minimum tuition unit purchases required to establish an account.
(l) The executive director shall develop operating procedures for the Texas Save and Match program.
§7.144.Gift Contributions.
(a) A person or entity may purchase tuition units for a beneficiary designated in an existing prepaid tuition contract by paying an amount referred to as a "gift contribution."
(b) A gift contribution may purchase additional tuition units or, in the case of a prepaid tuition contract using the installment plan for purchases, the gift contribution may be applied to current or future installment payments covered by the prepaid tuition contract.
(c) If the prepaid tuition contract uses an installment plan for purchases, the gift contribution will be applied to the next payment(s) due under the installment plan, unless the plan manager receives other written instructions from the purchaser of the existing prepaid tuition contract. Gift contributions may be used to reduce principal under an installment plan, reduce the amount or number of monthly payments, or to purchase additional lump sum tuition units, at the option of the purchaser.
(d) If a gift contribution results in an account balance that exceeds the value equivalent of 600 Type I tuition units or any other limit that might be imposed under Internal Revenue Code, §529, the excess contribution amount will be returned to the contributor.
(e) Persons or entities may make gift contributions to an established prepaid tuition account at any time, including outside the enrollment period.
(f) The tuition unit price for any lump sum gift contributions will be the tuition unit price in effect for the sales period when the payment is actually received by the plan manager. If the gift contribution is applied to make installment plan purchases that are due under the contract, the gift contribution will be applied at the price established in the prepaid tuition contract for the installment payments.
(g) Tuition units purchased by gift contribution and any installment payments made by gift contribution that are credited to an existing prepaid tuition contract account will be owned by, and subject to the direction and control of, the purchaser of the existing prepaid tuition contract. Such tuition units will not be owned by, or under the direction or control of, the person or entity making the gift contribution.
(h) A person or entity making a gift contribution and any designated beneficiary may not directly or indirectly direct the investment of any contributions to, or earnings on, the account.
§7.145.Marketing Considerations.
(a) The program will be marketed in a manner that promotes the participation goals and targets of the most recent revision of "Closing the Gaps," the state's master plan for higher education.
(b) The program will seek strategies that promote enrollment in the program by persons likely to qualify for federal earned income tax credits.
(c) The executive director may establish workgroups as necessary to identify enrollment barriers, solicit input from key stakeholders, and recommend initiatives to enhance program participation, especially for purchasers and beneficiaries eligible for the Texas Save and Match program. The workgroups may include, without limitation, representatives from such agencies as the Health and Human Services Commission, Texas Workforce Commission, the Texas Higher Education Coordinating Board, other agencies, community organizations, and constituencies interested in promoting higher education.
(d) The executive director may use employees of the executive director to conduct or assist in conducting marketing efforts on behalf of the board.
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on August 7, 2008.
TRD-200804131
Martin Cherry
General Counsel
Comptroller of Public Accounts
Effective date: August 27, 2008
Proposal publication date: July 4, 2008
For further information, please call: (512) 475-0387
SUBCHAPTER D. PLAN LIMITATIONS
The Board of Trustees (Board) of the Teacher Retirement System of Texas ("TRS") adopts the following amended rules regarding plan limitations based on the federal Internal Revenue Code, as well as federal regulations and guidance: §29.50 relating to definitions; §29.51 relating to plan limitations on retirement benefits; §29.52 relating to adjustment to annual benefit limit; and §29.55 relating to limitation on contributions. The amended sections are adopted with changes to the proposed text as published in the June 6, 2008, issue of the Texas Register (33 TexReg 4493). The changes do not require a resubmission of the proposed rules.
With recent changes to federal laws and regulations governing qualified retirement plans, including the Pension Protection Act of 2006 and new regulations implementing Section 415 of the Internal Revenue Code of 1986, as amended, it is necessary to update the TRS plan rules governing limitations on annual benefits and contributions to reflect current federal requirements. The adopted amendments update the TRS plan rules to reflect current federal provisions and also to describe in more detail the standards and processes by which TRS applies the limitations to annual benefits and to contributions made for the purchase of special service credit.
The adopted amendments to §29.50 add a definition for the term "limitation year" to clarify that the TRS plan year of September 1 through August 31 also is the limitation year for the purpose of applying the annual limitations on benefits and contributions. The amendments also clarify the applicability of the annual benefit limits to benefits other than service retirement benefits, including disability retirement or pre-retirement member death benefits, and modify definitions to more specifically reference applicable federal regulations. Changes to the text of the proposed amended rule as published are made primarily to further clarify how the federal limitations apply to the TRS retirement plan. The changes include the following: inserting "post-tax" in relation to member contributions to clarify treatment of the portion of an accrued benefit derived from such contributions; clarifying that a lump sum incidental death benefit is not part of the "annual benefit"; clarifying that the definition of "annual compensation" is for the purpose of applying the plan limitations, not for computing benefits under the plan; and clarifying how "back pay" within the meaning of U.S Treasury Department regulations may be treated as "annual compensation" for limitation purposes.
The adopted amendments to §29.51 add the effective date of the federal limits on benefits and contributions and modify existing language to include a general reference to contribution limitations. Changes to the text of the proposed amended rule as published are made primarily to further clarify how the federal limitations apply to the TRS plan. The changes include the following: clarifying that annual additions with respect to a member must be aggregated for all defined contribution plans maintained by the member's Texas public education employer and that aggregated contributions must be reduced to the extent necessary for compliance; making minor wording changes for clarity; and expressly stating that a repayment of refunded contributions need not be taken into account for purposes of Section 415 of the Internal Revenue Code.
The adopted amendments to §29.52 add the effective date for the applicable federal limits on benefits, delete obsolete provisions no longer applicable under federal law, and add detailed provisions regarding how the benefit limitation, expressed as a straight life form of annuity (i.e., a standard annuity), is to be adjusted if the form of benefit payable to the TRS recipient is not a straight life annuity. The adopted amendments alternatively add detailed provisions regarding how the form of benefit payable, if not a straight life annuity (i.e., a standard annuity), is to be adjusted to an actuarially equivalent straight life annuity for the purpose of comparing the benefit payable to the federal limitation, which is expressed as a straight life annuity. Changes to the text of the proposed amended rule as published are made primarily to enhance the logical organization of the section, to eliminate possible confusion about inapplicable provisions, and to clarify other provisions and internal references. The changes include the following: in subsection (a)(1), specifically stating the annual benefit limit of $160,000 prior to annual adjustments; deleting subsection (a)(2) regarding actuarial adjustments to the limit for retirements after age 65 because those are not relevant to the TRS plan at this time and the provision is potentially confusing; revising subsection (g) to more closely match applicable federal regulations and to delete text moved to new subsection (j); making minor wording changes in subsection (h)(1) for clarity; and adding new subsection (j) based on text deleted from subsection (g), with the addition of appropriate internal references for clarity.
The adopted amendments to §29.55 expressly set forth the limitations on contributions for service credit purchases and the authority of TRS to refuse to permit a service credit purchase if the amount of the contribution would exceed the applicable limit. The adopted amendments also set forth in detail the Internal Revenue Code provisions that permit certain service credit to be considered "permissive" service credit and thus subject to more favorable contribution limitations than service credit that is not "permissive" service credit. The amendments reflect the changes under the Pension Protection Act of 2006 to the definition of "permissive" service credit. Additionally, the amendments expressly provide that only service credit authorized to be purchased under the TRS retirement plan may be purchased; the description of what is considered permissive service credit under federal tax law does not expand the types of service credit available for purchase under the TRS retirement plan. Changes to the text of the proposed amended rule as published are made primarily to make improvements to wording for clarity. The changes include the following: correcting a reference in subsection (d) to a "subsection" by changing the reference to a "section"; adding a reference in subsection (f) to service credit for work experience by a career or technology teacher, which was inadvertently omitted from the list of types of TRS service credit that are considered permissive service credit under the rule; and, in subsection (g), rewording the subsection for clarity.
No comments were received regarding the proposed amended sections.
Statutory Authority: The amended rules are adopted under the following statutes: §823.006, Government Code, which authorizes the retirement system to limit the purchase of service credit to the extent required by applicable limits on the amount of annual contributions a participant may make to a qualified plan under Sections 401(a) and 415(c), Internal Revenue Code of 1986; §825.102, Government Code, which authorizes the Board to adopt rules for the administration of the funds of the retirement system; and §825.506, Government Code, which authorizes the Board of Trustees to adopt rules to ensure that benefits paid to a retiree, or to a beneficiary of a member or retiree, do not exceed the limits provided by §415 of the Internal Revenue Code of 1986.
§29.50.Definitions.
The following words and terms, when used in the sections under this subchapter, shall have the following meanings, unless the context clearly indicates otherwise.
(1) Annual additions--The sum of the following amounts credited to a member's account under any defined contribution plan (or a portion of a defined benefit plan treated as a defined contribution plan) maintained by the employer for the plan year:
(A) employer contributions;
(B) member contributions, including member contributions to a qualified defined benefit plan that have not been picked up under §414(h) of the Internal Revenue Code of 1986 but not including rollover contributions;
(C) forfeitures; and
(D) amounts allocated after March 31, 1984, to an individual medical benefit account, as defined in §415(1)(2) of the Internal Revenue Code, that is part of a pension or annuity plan maintained by the employer. Annual additions do not include amounts described in §415(1)(2) of that code for the purpose of computing the percentage limitation described in §415(c)(1)(B) of that code. For any plan year beginning before January 1, 1987, only that portion of the member contributions equal to the lesser of those member contributions in excess of 6.0% of annual compensation or one-half of the member's contributions to any qualified plan maintained by the employer is treated as annual additions.
(2) Annual benefit--A service retirement, disability retirement, or pre-retirement member death benefit calculated on the basis of service and average compensation under Tex. Gov't Code §824.203 or §824.204, whether paid to a retiree or to a beneficiary, and payable annually in the form of a straight life annuity (ignoring that portion of any joint and survivor annuity which constitutes a qualified joint and survivor annuity, as defined in §417 of the Internal Revenue Code) with no ancillary or incidental benefits or rollover contributions and exclusive of any portion of the benefit derived from post-tax member contributions or other contributions that are treated as a separate defined contribution plan under §417 of the Internal Revenue Code (but inclusive of any such contributions that are picked up by the employer pursuant to §414(h)(2) of the Internal Revenue Code, or that otherwise are not treated as a separate defined contribution plan). A lump sum incidental death benefit is not part of the annual benefit. If the benefit is payable in any other form, the determination as to whether the limitation described in §29.51 of this title (relating to Plan Limitations on Annual Benefits and Member Contributions) or §29.52 of this title (relating to Adjustment to Annual Benefit Limit) has been satisfied shall be made by adjusting such benefit so that it is actuarially equivalent to the annual benefit described in this section in accordance with the regulations issued by the U.S. secretary of the treasury.
(3) Annual compensation--For purposes of only applying plan limitations and not for computing benefits under Tex. Gov't Code §822.201 or 34 Tex. Admin. Code ch. 25, subch's B (relating to Compensation) and C (relating to Unreported Service or Compensation), all wages within the meaning of §3401(a) of the Internal Revenue Code relating to income tax withholding at source, but determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the services performed and without regard to whether such wages are treated as compensation under any other provision of this chapter. For purposes of applying plan limitations, the definition of compensation where applicable will be compensation defined in Treasury Regulation §1.415(c)-2(d)(3), or successor regulations; provided, however, that the definition of compensation will exclude member contributions picked up under §414(h)(2) of the Internal Revenue Code, and for plan years beginning after December 31, 1997, compensation will include the amount of any elective deferrals, as defined in §402(g)(3) of the Internal Revenue Code and any amounts contributed or deferred by the employer at the election of the member and which is not includible in the gross income of the member by reason of §125 or §457 of the Internal Revenue Code, and for plan years beginning on and after January 1, 2001, §132(f)(4) of that code. Back pay, within the meaning of Treasury Regulation §1.415(c)-2(g)(8) shall be treated as compensation for the limitation year to which the back pay relates to the extent the back pay represents wages and compensation that would otherwise be included under this definition. For a limitation year beginning after January 1, 2007, compensation for the limitation year will also include compensation paid by the later of 2 1/2 months after an employee's severance from employment or the end of the limitation year that includes the date of the employee's severance from employment if
(A) the payment is regular compensation for services during the employee's regular working hours, or compensation for services outside the employee's regular working hours (such as overtime or shift differential), commissions, bonuses, or other similar payments, and absent a severance from employment the payments would have been paid to the employee while the employee continued in employment with the employer; or
(B) the payment is for unused accrued bona fide sick leave, vacation, or other leave that the employee would have been able to use if employment had continued.
(4) Code--The Internal Revenue Code of 1986, as amended.
(5) Defined contribution plan--A plan described in §414(i) of the Internal Revenue Code and, solely for purposes of this subchapter, employee contributions to any other qualified plan maintained by the employer, other than any picked-up contributions.
(6) Employer--The agents, agencies or political subdivisions of the State responsible for education, including the governing board of any school district created under the laws of the State, any county school board, the board of trustees, the State Board of Education, the Texas Education Agency, the board of regents of any college or university, or any other legally constituted board or agency of any public school.
(7) Limitation year--The limitation year for purposes of §415 of the Internal Revenue Code beginning on September 1 of each year and ending on the following August 31.
(8) Member contributions--Those contributions within the meaning of §411(c)(2)(C) of the Internal Revenue Code, but not any contributions picked up by the employer within the meaning of §414(h)(2) of that code.
(9) Plan year--The plan's accounting year beginning on September 1 of each year and ending on the following August 31.
§29.51.Plan Limitations on Annual Benefits and Member Contributions.
(a) Effective as of July 1, 1989, and notwithstanding any other plan provision in statute or rule, member contributions paid to, and annual benefits paid from, TRS may not exceed the annual limits on contributions and benefits, respectively, allowed by §415 of the Internal Revenue Code.
(b) Benefits provided to a member under this plan and under any other defined benefit plan or plans maintained by the member's employer under this plan shall be aggregated for purposes of determining whether the limitations in subsection (a) of this section are met. Annual additions with respect to a member under this plan and under any other defined contribution plan maintained by the member's employer under this plan shall be aggregated for purposes of determining whether the limitations of subsection (a) of this section are met. If the aggregate benefits otherwise payable to any member from this plan and any other defined benefit plan or plans maintained by the employer would otherwise exceed the limitations of subsection (a) of this section, reductions in benefits and contributions are required to be made to the other plan to the extent necessary to enable each plan or plans to satisfy those limitations.
(c) A repayment of contributions, including interest, and payment of applicable reinstatement fees to the retirement system with respect to an amount previously refunded upon a cancellation of service credit under the retirement system shall not be taken into account for purposes of §415 of the Internal Revenue Code, in accordance with applicable Treasury regulations.
§29.52.Adjustment to Annual Benefit Limit.
(a) Before July 1, 1995, a member may not receive an annual benefit that exceeds the dollar amount and salary limits specified in §415(b) of the Internal Revenue Code, subject to the applicable adjustments in that section. On or after July 1, 1995, a member may not receive an annual benefit that exceeds the dollar amount specified in §415(b)(1)(A) of that code, subject to the applicable adjustments in §415(b) of that code.
(1) If the annual benefit begins before the member attains age 62, the Internal Revenue Code §415(b)(1)(A) limitation, as adjusted, shall be reduced in a manner prescribed by the U.S. secretary of the treasury pursuant to the provisions of §415 of the Internal Revenue Code, so that such limit (as so reduced) equals an annual straight life benefit (when such retirement income benefit begins) which is equivalent to a $160,000 (as adjusted) annual benefit beginning at age 62.
(2) The portion of a member's benefit that is attributable to the member's own contributions (other than picked-up contributions) is not part of the annual benefit subject to the limitations of this section. Instead, the amount of those member contributions is treated as an annual addition to a qualified defined contribution plan maintained by the employer.
(b) The dollar limitation on annual benefits provided by this section shall be adjusted annually as provided by §415(d) of the Internal Revenue Code and the regulations prescribed by the U.S. secretary of the treasury to reflect cost of living adjustments. The adjusted limitation is effective for TRS benefits for the TRS plan year that begins on or after the earliest allowable effective date of the changes under federal regulations.
(c) The limitation provided by this section for a member who has separated from service with a vested right to a pension shall be adjusted annually as provided by §415(d) of the Internal Revenue Code and the regulations prescribed by the U.S. secretary of the treasury. On and after July 1, 1995, in no event shall a member's annual benefit payable from TRS in any limitation year be greater than the limit applicable at the annuity starting date, as increased in subsequent years pursuant to §415(d) of that code and the regulations thereunder.
(d) If the form of benefit is not a straight life (standard annuity) or qualified joint and survivor annuity (Option 1, 2, or 5 with a spousal beneficiary), then the applicable limit described in subsection (c) of this section shall be determined by either reducing the §415(b) of the Internal Revenue Code limit applicable at the annuity starting date or adjusting the form of benefit to an actuarially equivalent straight life annuity benefit determined using the following assumptions that take into account the death benefits under the form of benefit:
(1) For a benefit paid in a form to which §417(e)(3) of the Internal Revenue Code does not apply (Option 1, 2, or 5 with a non-spouse beneficiary, or Option 3 or 4), the actuarially equivalent straight life annuity benefit which is the greater of (or the reduced §415(b) of that code limit applicable at the annuity starting date which is the lesser of when adjusted in accordance with the following assumptions):
(A) The annual amount of the straight life annuity (if any) payable to the participant under the plan commencing at the same annuity starting date as the form of benefit payable to the participant; or
(B) The annual amount of the straight life annuity commencing at the same annuity starting date that has the same actuarial present value as the form of benefit payable to the participant, computed using a 5 percent interest assumption (or the applicable statutory interest assumption) and the applicable mortality table described in §1.417(e)-1(d)(2) of the Income Tax Regulations (the mortality table specified in Revenue Ruling 98-1 (prior to 2003) or Revenue Ruling 2001-62 or any subsequent Revenue Ruling modifying the applicable provisions of Revenue Ruling 2001-62); or
(2) For a benefit paid in a form to which §417(e)(3) of the Internal Revenue Code applies (the deferred retirement option plan (DROP) or partial lump sum option (PLSO) portion of the benefit), the actuarially equivalent straight life annuity benefit which is the greatest of (or the reduced §415(b) of that code limit applicable at the annuity starting date which is the least of when adjusted in accordance with the following assumptions):
(A) The annual amount of the straight life annuity commencing at the annuity starting date that has the same actuarial present value as the particular form of benefit payable, computed using the interest rate and mortality table, or tabular factor, specified in the plan for actuarial experience;
(B) The annual amount of the straight life annuity commencing at the annuity starting date that has the same actuarial present value as the particular form of benefit payable, computed using a 5.5 percent interest assumption (or the applicable statutory interest assumption) and the applicable mortality table for the distribution under §1.417(e)-1(d)(2) of the Income Tax Regulations (the mortality table specified in Revenue Ruling 98-1 (prior to 2003) or Revenue Ruling 2001-62 or any subsequent Revenue Ruling modifying the applicable provisions of Revenue Ruling 2001-62); or
(C) The annual amount of the straight life annuity commencing at the annuity starting date that has the same actuarial present value as the particular form of benefit payable (computed using the applicable interest rate for the distribution under §1.417(e)-1(d)(3) of the Income Tax Regulations (the 30-year Treasury rate (prior to July 1, 2007, using the rate in effect for the month prior to retirement, and on and after July 1, 2007, using the rate in effect for the first day of the plan year with a one-year stabilization period)) and the applicable mortality table for the distribution under §1.417(e)-1(d)(2) of the regulations (the mortality table specified in Revenue Ruling 98-1 (prior to 2003) or Revenue Ruling 2001-62 or any subsequent Revenue Ruling modifying the applicable provisions of Revenue Ruling 2001-62), divided by 1.05.
(e) The following interest rate assumptions shall be used in computing the limitations under this section. For the purpose of determining the portion of the annual benefit that is attributable to member contributions, the factors described in §411(c)(2)(B) and (C) of the Internal Revenue Code and the regulations thereunder shall be used even though §411 of that code does not otherwise apply to the retirement system.
(f) An adjustment under §415(d) of that code may not be taken into account before the year for which that adjustment first takes effect.
(g) No adjustment is required for the value of qualified joint and survivor annuity benefits, disability retirement benefits, pre-retirement death benefits, post retirement medical benefits, or any other benefit not required under §415(b)(2) of the Internal Revenue Code and regulations thereunder to be taken into account for purposes of the limitation of §415(b)(1) of that Code.
(h) This plan may still pay an annual benefit to any member in excess of the member's maximum annual benefit otherwise allowed if:
(1) the member's annual benefit derived from the employer's contributions under all defined benefit plans of the employer subject to the limitations of §25.51 and §415 of the Internal Revenue Code does not in the aggregate exceed $10,000 for the limitation year or for any prior limitation year; and
(2) the member has not at any time participated in a defined contribution plan maintained by the employer. For purposes of this subsection, member contributions to the plan are not considered a separate defined contribution plan maintained by the employer.
(i) If a member has fewer than ten years of actual membership service credit in the plan at the time the member begins to receive benefits under the plan, the Internal Revenue Code §415(b)(1)(A) limitation, as adjusted, shall be reduced by multiplying the limitation by a fraction in which the numerator is the number of years of service credit and the denominator is 10; provided, however, that the fraction may not be less than one-tenth. If the member has fewer than ten years of employment with the employer, the $10,000 limitation of subsection (h) of this section shall be reduced in the same manner as provided in the preceding sentence, except the numerator shall be the number of actual years of employment with the employer rather than number of years of service credit.
(j) For a disability retirement benefit or a pre-retirement death benefit, the adjustment in subsection (a)(1) of this section is not required for payment made with respect to a member before the member reaches or would have reached age 62, and the adjustment in subsection (i) of this section is not required for payment made with respect to a member with fewer than ten years of service credit under TRS.
§29.55.Limitation on Contributions.
(a) Notwithstanding any other provision of law to the contrary, TRS may refuse a request by a member to make a contribution to the retirement system for the purchase of service credit if the amount of the contribution would exceed the limits provided in §415 of the Internal Revenue Code.
(b) A member may use an installment payment plan to the extent permitted under applicable law to avoid making a contribution in excess of the limits under §415(c) or §415(n) of the Internal Revenue Code.
(c) Effective for permissive service credit contributions made in limitation years beginning after December 31, 1997, if a member makes one or more contributions to purchase permissive service credit under TRS, then the requirements of §415 of the Internal Revenue Code will be treated as met only if:
(1) the requirements of §415(b) of the Internal Revenue Code are met, determined by treating the accrued benefit derived from all such contributions as an annual benefit for purposes of §415(b) of that code; or
(2) the requirements of §415(c) of the Internal Revenue Code are met, determined by treating all such contributions as annual additions for purposes of §415(c) of that code.
(d) For purposes of applying subsection (c)(1) of this section, the retirement system will not fail to meet the reduced limit under §415(b)(2)(C) of the Internal Revenue Code solely by reason of this section, and for purposes of applying subsection (c)(2) of this section, the system will not fail to meet the percentage limitation under §415(c)(1)(B) of that code solely by reason of this section.
(e) For purposes of subsection (c) of this section the term "permissive service credit" means service credit:
(1) specifically authorized by state law and recognized by the retirement system for purposes of calculating a member's benefit under the system;
(2) which such member has not received under the system, prior to the purchase of such service credit; and
(3) which such member may receive only by making a voluntary additional contribution, in an amount determined under the System, which does not exceed the amount necessary to fund the benefit attributable to such service credit.
(f) Effective for permissive service credit contributions made in years beginning after December 31, 1997, such term may include service credit for periods for which there is no performance of service, and, notwithstanding subsection (e)(2) of this section, may include service credited in order to provide an increased benefit for service credit which a member is receiving under the System. Permissive service credit shall include:
(1) military service credit under Tex. Gov't Code §823.302;
(2) developmental leave service credit under Tex. Gov't Code §823.402;
(3) membership waiting period service credit under Tex. Gov't Code §823.406;
(4) substitute service credit under §25.4 of this title (relating to Substitutes);
(5) out-of-state service credit under Tex. Gov't Code §823.401;
(6) unused leave service credit under Tex. Gov't Code §823.403;
(7) service credit for work experience by a career or technology teacher; and
(8) "additional service credit" under the service credit purchase option authorized by Tex. Gov't Code §823.405.
(g) For the retirement system to meet the requirements of subsection (c) of this section:
(1) more than five years of nonqualified service credit shall not be taken into account for purposes of subsection (c) of this section; and
(2) no nonqualified service credit shall be taken into account under subsection (c) of this section before the member has at least five years of participation under the system.
(h) For purposes of subsection (g) of this section, effective for permissive service credit contributions made in years beginning after December 31, 1997, the term "nonqualified service credit" means permissive service credit other than that allowed with respect to:
(1) service (including parental, medical, sabbatical, and similar leave) as an employee of the government of the United States, any state or political subdivision thereof, or any agency or instrumentality of any of the foregoing (other than military service or service for credit which was obtained as a result of a repayment described in §415(k)(3) of the Internal Revenue Code);
(2) service (including parental, medical, sabbatical, and similar leave) as an employee (other than as an employee described in paragraph (1) of this subsection of an education organization described in §170(b)(1)(A)(ii) of the Internal Revenue Code which is a public, private, or sectarian school which provides elementary or secondary education (through grade 12), or a comparable level of education, as determined under the applicable law of the jurisdiction in which the service was performed;
(3) service as an employee of an association of employees who are described in paragraph (1) of this subsection; or
(4) military service (other than qualified military service under §414(u) of the Internal Revenue Code) recognized by TRS.
(i) In the case of service described in subsection (h)(1) - (3) of this section, such service will be nonqualified service if recognition of such service would cause a member to receive a retirement benefit for the same service under more than one plan. The Internal Revenue Code standards for qualified permissive service credit as reflected in subsection (h)(1) - (4) of this section do not expand the authorized types of service credit available to be purchased under the TRS plan.
(j) In the case of a trustee-to-trustee transfer after December 31, 2001, to which §403(b)(13)(A) or §457(e)(17)(A) of the Internal Revenue Code applies (without regard to whether the transfer is made between plans maintained by the same employer):
(1) the limitations of subsection (g) of this section will not apply in determining whether the transfer is for the purchase of permissive service credit; and
(2) the distribution rules applicable under federal law to TRS will apply to such amounts and any benefits attributable to such amounts.
(k) For an eligible member, the limitation of §415(c)(1) of the Internal Revenue Code shall not be applied to reduce the amount of permissive service credit which may be purchased to an amount less than the amount which was allowed to be purchased under the terms of the statutes and rules applicable to TRS as in effect on August 5, 1997. For purposes of this subsection, an eligible member is an individual who first became a member of TRS before September 1, 2000.
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on August 5, 2008.
TRD-200804091
Pattie Featherston
Chief Operating Officer
Teacher Retirement System of Texas
Effective date: August 25, 2008
Proposal publication date: June 6, 2008
For further information, please call: (512) 542-6438