Administrative Rules of the State of Montana

BEFORE THE DEPARTMENT OF PUBLIC

HEALTH AND HUMAN SERVICES OF THE

STATE OF MONTANA

In the matter of the adoption of New Rules I through IX pertaining to creating the Montana achieving a better life experience (ABLE) program

)

NOTICE OF PUBLIC HEARING ON PROPOSED ADOPTION

TO: All Concerned Persons

1. On June 9, 2016, at 10:00 a.m., the Department of Public Health and Human Services will hold a public hearing in the auditorium of the Department of Public Health and Human Services Building, 111 North Sanders, Helena, Montana, to consider the proposed adoption of the above-stated rules.

2. The Department of Public Health and Human Services will make reasonable accommodations for persons with disabilities who wish to participate in this rulemaking process or need an alternative accessible format of this notice. If you require an accommodation, contact the Department of Public Health and Human Services no later than 5:00 p.m. on June 1, 2016, to advise us of the nature of the accommodation that you need. Please contact Kenneth Mordan, Department of Public Health and Human Services, Office of Legal Affairs, P.O. Box 4210, Helena, Montana, 59604-4210; telephone (406) 444-4094; fax (406) 444-9744; or e-mail [email protected].

3. The rules as proposed to be adopted provide as follows:

NEW RULE I ACHIEVING A BETTER LIFE EXPERIENCE (ABLE) PROGRAM: PURPOSE (1) The purpose of the ABLE program is to provide Montana residents with access to a tax-favored program designed to provide secure funding for qualified disability-related expenses on behalf of individuals with disabilities that will supplement, but not supplant, benefits provided through public or private sources.

AUTH: 53-25-104, MCA

IMP: 53-25-102, MCA

NEW RULE II DEFINITIONS The following definitions, found in 53-25-103, MCA, apply to this subchapter:

(1) "Account" means an eligible participating account established under Title 53, chapter 25, MCA, by or on behalf of an eligible individual.

(2) "Account owner" means the designated beneficiary of the account.

(3) "Annual contribution limit" means the limit established in section 529A(b)(2) of the Internal Revenue Code, 26 U.S.C. 529A(b)(2).

(4) "Application" means a form executed by or on behalf of a prospective account owner to enter into a participating trust agreement and open an account. The application incorporates the participating trust agreement by reference.

(5) "Committee" means the achieving a better life experience program oversight committee established in 53-25-105, MCA.

(6) "Contribution" means a payment to an account for the benefit of a designated beneficiary.

(7) "Department" means the Department of Public Health and Human Services provided for in 2-15-2201, MCA.

(8) "Designated beneficiary" means the eligible individual on whose behalf an account is established.

(9) "Eligible individual" means an eligible individual as defined in section 529A(e)(1) of the Internal Revenue Code, 26 U.S.C. 529A(e)(1).

(10) "Financial institution" means a bank, commercial bank, national bank, savings bank, savings and loan association, credit union, insurance company, trust company, investment adviser, or other similar entity that is authorized to do business in this state.

(11) "Investment products" means, without limitation, certificates of deposit, savings accounts paying fixed or variable interest, financial instruments, one or more mutual funds, and a mix of mutual funds.

(12) "Member of the family" means, with respect to a designated beneficiary, a member of the family of the designated beneficiary as defined in section 529A(e)(4) of the Internal Revenue Code, 26 U.S.C. 529A(e)(4).

(13) "Nonqualified withdrawal" means a withdrawal from the account that is not:

(a) a qualified withdrawal;

(b) a withdrawal made as the result of the death of the designated beneficiary of an account; or

(14) "Participating trust agreement" means an agreement between an account owner and the department or its designee that creates a trust interest in the trust and provides for participation in the program.

(15) "Program" means the Montana achieving a better life experience program provided for in 53-25-101, et seq., MCA and authorized under section 529A of the Internal Revenue Code, 26 USC 529A.

(16) "Program manager" means a financial institution that acts as an agent of the trust as provided in 53-25-112, MCA.

(17) "Qualified disability expenses" means qualified disability expenses as defined in section 529A(e)(5) of the Internal Revenue Code, 26 USC 529A(e)(5).

(18) "Qualified withdrawal" means a withdrawal from an account to pay the qualified disability expenses of the beneficiary of the account. A qualified withdrawal may be made by the beneficiary, by an agent of the beneficiary who has a power of attorney for the beneficiary, or by the beneficiary's legal guardian.

(19) "Rollover distribution" means a transfer of funds made:

(a) from one account in another state's qualified program to an account for the benefit of the same designated beneficiary or an eligible individual who is a family member of the former designated beneficiary; or

(b) from one account to another account for the benefit of an eligible individual who is a family member of the former designated beneficiary.

(20) "Trust" means the achieving a better life experience savings trust as provided in 53-25-121, MCA.

(21) "Trustee" means the department in its capacity as trustee of the trust.

AUTH: 53-25-104, MCA

IMP: 53-25-103, MCA

NEW RULE III FEES (1) There is a one-time application fee of $25 for opening a new account. The fee must be paid when the new account is established.

(2) Financial institutions acting as program managers may impose fees upon account owners. Program management fees must be approved by the department before they can be imposed.

(3) Application fees collected must be remitted to the department and placed in a state special revenue account and only be used for administration of the program.

(4) Program management fees will be retained by each program manager as compensation for program management services.

AUTH: 53-25-104, MCA

IMP: 53-25-109, 53-25-112, MCA

NEW RULE IV DUTIES OF PROGRAM MANAGER (1) Each program manager must do the following:

(a) generally administer and carry out the program according to the directions and policies of the department and applicable law;

(b) keep adequate records of each account that is under its direction, keep such account segregated from other accounts and post contributions to accounts within no later than the business day that it receives verification that such contributions consist of fully collected funds;

(c) provide the department and all appropriate governmental and regulatory agencies all reports and information as may be required or deemed necessary to obtain tax advantages available under state or federal laws;

(d) provide regular statements at least annually, within 31 days of the annual period to which they apply, to each account owner showing all contributions, withdrawals, and earnings posted to each account during the previous reporting period;

(e) comply with the terms and conditions of its contract with the department;

(f) take all actions required to keep the program in compliance with the requirements of the ABLE Act and all reasonable action not contrary to the ABLE Act, these rules or the depository or program manager's contract to manage its program accounts so that it is treated as a qualified ABLE Act program under section 529A(b) of the Internal Revenue Code, 26 USC 529A(b);

(g) comply with all other laws and regulations applicable to the program manager;

(h) retain or provide copies to the department of all applications and related documentation received pursuant to these rules;

(i) include in any application, participating trust agreement, contract, offering or disclosure document, and any other document identified by the department that may be used in connection with a contribution to an account an express statement that the account is not insured by the state and that the principal deposited and any investment return are not guaranteed by the state; and

(j) include in any application or participating trust agreement a statement that the program must provide that a portion or all of the balance remaining in the account of a deceased designated beneficiary must be distributed to a state that files a claim against the designated beneficiary or the account itself with respect to benefits provided to the designated beneficiary under that state's Medicaid plan.

AUTH: 53-25-104, MCA

IMP: 53-25-109, 53-25-110, 53-25-113, MCA

NEW RULE V OPENING OF ACCOUNTS: QUALIFICATIONS (1) An account may be opened by or on behalf of an eligible individual who is a resident of Montana or a resident of a state that has entered into a contract with Montana to provide its residents access to the program.

(2) An eligible individual or the eligible individual's legal guardian or agent under a power of attorney may open an account for the benefit of the eligible individual by:

(a) completing an application and a participating trust agreement supplied by the program manager;

(b) making the minimum contribution required by the program manager; and

(3) The application or participating trust agreement must include:

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

(b) the name, address, telephone number, and social security number of the eligible individual who will be the designated beneficiary and account owner;

(d) the certification relating to no excess contributions adopted by the department;

(e) the designation of the type of account to be opened if more than one type of account is offered;

(f) the certification that money in the account will be used solely to save for and to pay for the account owner's qualified disability expenses;

(g) the certification that the account will not be used or pledged as security for a loan;

(h) copies of documents establishing a legal guardianship or power of attorney if the account is established by a legal guardian or individual acting pursuant to a power of attorney; and

(i) any other information the department requires.

(4) Unless required by federal law or regulation, money in any account may not be counted as a resource in determining eligibility for an assistance program operated under Title 53, MCA, or any other federal, state, or local government means-tested program.

AUTH: 53-25-104, MCA

IMP: 53-25-109, 53-25-120, MCA

NEW RULE VI CONTRIBUTIONS AND LIMITS (1) Subject to the limitations in (2), any person, including a nonresident of Montana and an individual who is not the account owner, may make a contribution to an account.

(2) All contributions to accounts must be in cash and may not exceed the annual contribution limit found in section 529(A)(b)(2) of the Internal Revenue Code, 26 USC 529(b)(2).

(3) Contributions may be made following payroll deduction plans to which the contributor and his or her employer are parties. In such case, the employer, on behalf of the contributor, will send the contribution to the program manager, as agent for the trustee.

AUTH: 53-25-104, MCA

IMP: 53-25-109, MCA

NEW RULE VII WITHDRAWALS (1) Qualified withdrawals from an account are:

(a) a withdrawal from an account to pay the qualified disability expenses of an account owner;

(b) a withdrawal made as the result of the death of the account owner; or

(2) A qualified withdrawal may be made by the account owner, by an agent of the account owner who has a power of attorney for the beneficiary, or by the account owner's legal guardian for qualified disability expenses.

(3) Nonqualified withdrawals are any withdrawals from an account other than qualified withdrawals and are subject to a recapture tax, as allowed under section 529A(c)(3) of the Internal Revenue Code and as implemented by the Montana Department of Revenue.

AUTH: 53-25-104, MCA

IMP: 53-25-110, MCA

NEW RULE VIII REPORTING REQUIREMENTS (1) At least annually, within 31 days of the annual period to which they apply, the program manager must provide to each account owner an account statement. The statement must include:

(a) a balance of the account at the beginning of the reporting period;

(b) all activity during the reporting period including deposits, withdrawals, penalties paid, and income earned; and

(2) A program manager must prepare and provide to account owners such information as the Internal Revenue Service or federal income tax law may require be provided to account owners by the required deadlines.

(3) A program manager must prepare and provide to the Department of Revenue (DOR) such information as the director of DOR may request to permit the DOR to verify the $3,000 income deduction permitted by 15-30-2110(12), MCA.

(4) A program manager, upon request of the department, must provide to the department copies of the reports that it provides to account owners.

AUTH: 53-25-104, MCA

IMP: 53-25-109, 53-25-118, MCA

NEW RULE IX TERMINATION OF PROGRAM MANAGER (1) If the department determines not to renew a contract with an existing program manager, then the department, as trustee of the trust, may take appropriate action consistent with the interest of the program and the accounts.

(2) Except as provided in (3), if the department does not renew a contract with a program manager, at the end of the term of the nonrenewed contract, the program manager must:

(a) continue to administer accounts already established with the program manager, including accepting additional contributions;

(b) not establish new accounts unless and until a new program contract is executed with the department; and

(c) comply with all rules or policies established by the department or the terms of a contract between the department and the nonrenewed program manager executed for the purpose of administering and managing the existing accounts.

(3) The department may terminate a contract with a program manager or prohibit the continued investment of funds with a nonrenewed program manager at any time for good cause on the recommendation of the committee.

(4) Upon termination of a program manager contract for good cause or prohibition of investment upon recommendation of the committee, the department must take custody of account funds held at the financial institution and must promptly reinvest the funds with another financial institution selected as a program manager by the department and into the same investment products or substantially similar investment products.

(5) Subject to (6), prior to terminating a contract or prohibiting investment, the department must give account owners notice of the termination and a period of up to 30 days to voluntarily terminate the account and to select another program manager with which to establish an account.

(6) If termination of a program manager causes an emergency that may lead to a loss of funds to any account owner, the department may take emergency action as necessary or appropriate to prevent the loss of funds. After taking emergency action, the department must provide notice to account owners and opportunity for action as provided in (5).

AUTH: 53-25-104, MCA

IMP: 53-25-109, 53-25-112, MCA

4. STATEMENT OF REASONABLE NECESSITY

The Department of Public Health and Human Services (department) is proposing to adopt New Rules I through IX in order to implement Senate Bill 399 (SB399) passed by the 64th Montana Legislature in 2015 and codified in Title 53, chapter 25, MCA. The proposed rule language is written to implement the Montana Achieving a Better Life Experience (ABLE) Act, which provides for tax-exempt savings accounts for disability-related expenses.

The rule language was developed based on the language in the ABLE Act and language in the Board of Regent's policy regarding college savings 529 accounts.

Section 53-25-104, MCA, requires that these rules be written. This program is based upon the authority in section 529A of the Internal Revenue Code, so relevant state and federal laws apply.

New Rules I through IX

These proposed new rules provide purpose, definitions, requirements, and limitations for this program authorized by the ABLE Act. They describe the benefits of the ABLE Act program and how the program will be operated.

These proposed new rules are necessary in order to adhere to legislative intent, provide direction for program manager(s), specify requirements and limitations, and ensure the state's compliance with federal requirements.

Fiscal Impact

The legislative fiscal note that accompanied SB399 estimated that for the biennium, the impact to the general fund would be $23,600 in expenses and $42,000 in lost revenue.

An estimate of the number of individuals who will access this program is not available at this time.

5. The department intends to apply these new rule adoptions retroactively to January 1, 2016. A retroactive application of the proposed rule adoptions does not result in a negative impact to any affected party.

6. Concerned persons may submit their data, views, or arguments either orally or in writing at the hearing. Written data, views, or arguments may also be submitted to: Kenneth Mordan, Department of Public Health and Human Services, Office of Legal Affairs, P.O. Box 4210, Helena, Montana, 59604-4210; fax (406) 444-9744; or e-mail [email protected], and must be received no later than 5:00 p.m., June 17, 2016.

7. The Office of Legal Affairs, Department of Public Health and Human Services, has been designated to preside over and conduct this hearing.

8. The department maintains a list of interested persons who wish to receive notices of rulemaking actions proposed by this agency. Persons who wish to have their name added to the list shall make a written request that includes the name, e-mail, and mailing address of the person to receive notices and specifies for which program the person wishes to receive notices. Notices will be sent by e-mail unless a mailing preference is noted in the request. Such written request may be mailed or delivered to the contact person in 6 above or may be made by completing a request form at any rules hearing held by the department.

9. An electronic copy of this proposal notice is available through the Secretary of State's web site at http://sos.mt.gov/ARM/Register. The Secretary of State strives to make the electronic copy of the notice conform to the official version of the notice, as printed in the Montana Administrative Register, but advises all concerned persons that in the event of a discrepancy between the official printed text of the notice and the electronic version of the notice, only the official printed text will be considered. In addition, although the Secretary of State works to keep its web site accessible at all times, concerned persons should be aware that the web site may be unavailable during some periods, due to system maintenance or technical problems.

10. The bill sponsor contact requirements of 2-4-302, MCA, apply and have been fulfilled. The primary bill sponsor was notified by mail on April 27, 2016.

11. With regard to the requirements of 2-4-111, MCA, the department has determined that the adoption of the above-referenced rules will not significantly and directly impact small businesses.

12. Medicaid monies will not be used in the operation of the ABLE Act Program and therefore performance-based measures are not applicable.

/s/ Shannon McDonald for /s/ Richard H. Opper

Susan Callaghan, Attorney Richard H. Opper, Director

Rule Reviewer Public Health and Human Services

Certified to the Secretary of State May 9, 2016.