Bill Text: PA SB131 | 2009-2010 | Regular Session | Introduced

---

Bill Title: Authorizing establishment and maintenance of disability savings accounts; providing an exclusion from State income tax; and imposing restrictions.

Spectrum: Slight Partisan Bill (Republican 13-7)

Status: (Introduced - Dead) 2009-01-30 - Referred to FINANCE [SB131 Detail]

Download: Pennsylvania-2009-SB131-Introduced.html

---

PRINTER'S NO. 103
THE GENERAL ASSEMBLY OF PENNSYLVANIA
SENATE BILL
No. 131 Session of2009
INTRODUCED BY ERICKSON, MUSTO, TARTAGLIONE, TOMLINSON, FONTANA, KITCHEN, ORIE, GORDNER, ALLOWAY, BRUBAKER, BROWNE, VANCE, RAFFERTY, GREENLEAF, WASHINGTON, EARLL, WAUGH, O'PAKE, PILEGGI AND MELLOW, JANUARY 30, 2009
REFERRED TO FINANCE, JANUARY 30, 2009
AN ACT
Authorizing establishment and maintenance of disability savings
accounts; providing an exclusion from State income tax; and
imposing restrictions.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Short title.
This act shall be known and may be cited as the Disability
Savings Account Act.
Section 2. Definitions.
The following words and phrases when used in this act shall
have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Account administrator." Any of the following:
(1) A national or State-chartered bank or Federal or
State-chartered savings and loan association, savings bank or
credit union.
(2) A trust company authorized to act as a fiduciary.
(3) An insurance company authorized to do business in
this Commonwealth pursuant to the act of May 17, 1921 (P.L.
682, No.284), known as The Insurance Company Law of 1921.
(4) A broker-dealer, commodity issuer, investment
advisor or agent registered pursuant to the act of December
5, 1972 (P.L.1280, No.284), known as the Pennsylvania
Securities Act of 1972.
(5) A third-party administrator with a current
certificate of authority issued pursuant to the laws of this
Commonwealth.
(6) A certified public accountant licensed to practice
in this Commonwealth pursuant to the act of May 26, 1947
(P.L.318, No.140), known as the CPA Law.
(7) An attorney licensed to practice in this
Commonwealth.
(8) An employer that participates in a disability
savings account program.
(9) Persons who are qualified to administer trusts
authorized under the provisions of section 1917 of the Social
Security Act (49 Stat. 620, 42 U.S.C. § 1396p) in this
Commonwealth.
"Account holder." An individual who has been determined to
have mental retardation, as defined in section 102 of the act of
October 20, 1966 (3rd Sp.Sess., P.L.96, No.6), known as the
Mental Health and Mental Retardation Act of 1966, and who
establishes or on whose behalf a disability savings account is
established, including an employee of an employer who
contributes to a disability savings account on the employee's
behalf.
"Disability savings account" or "account." A trust or
20090SB0131PN0103 - 2 -
custodian account established in this Commonwealth pursuant to
the authority of this act exclusively to pay the qualified
disability expenses of an account holder, but only if the
written governing instrument creating the account meets the
following requirements:
(1) Except in the case of a contribution representing a
transfer from an existing account, no contribution may be
accepted:
(i) unless it is in cash; and
(ii) only to the extent such contribution, when
added to previous contributions to the account for the
calendar year, does not exceed the maximum amount
permitted to be given under the provisions of section
2503 of the Internal Revenue Code of 1986 (Public Law
99-514, 26 U.S.C. § 2503) without creating liability for
payment of gift tax by the donor or his estate.
(2) The trustee or custodian for the account is
qualified to act as an account administrator hereunder.
(3) No part of the assets of the account may be invested
in life insurance contracts.
(4) The assets of the account may not be commingled with
other property.
(5) The account holder's interest in the account is
nonforfeitable.
"Disability savings account program" or "program." A program
that includes all of the following:
(1) The contribution into a disability savings account
by an account holder or on behalf of the account holder by
the account holder's employer, parent or guardian, provided
that the total annual contribution does not exceed the
20090SB0131PN0103 - 3 -
maximum amount permitted to be given under the provisions of
section 2503 of the Internal Revenue Code of 1986 (Public Law
99-514, 26 U.S.C. § 2503).
(2) An account administrator to administer the
disability savings account from which payment of claims is
made, provided that not more than 30 days after the account
administrator begins to administer the account, the account
administrator notifies in writing each account holder on
whose behalf the administrator administers the account of the
date of the last business day of the administrator's business
year.
"Qualified disability expenses." Expenditures made from an
account for the benefit of the account holder and used for goods
and services which assist the account holder to attain or
maintain independence or to obtain educational opportunities,
job training, employment, housing or to otherwise ameliorate the
impact of disabilities on the account holder's independence and
to support the account holder in the activities of daily life.
Such expenses shall include, but not be limited to:
(1) All expenses permitted to be paid for by trusts
created under the authority of section 1917 of the Social
Security Act (49 Stat. 620, 42 U.S.C. § 1396p).
(2) Assistive technology.
(3) Employment training and other educational
activities.
(4) Fees and expenses directly related to the operation
of the account but only as established in a written agreement
between the account holder and the account administrator.
Section 3. Nature of program.
(a) General rule.--The provisions of this act shall apply to
20090SB0131PN0103 - 4 -
taxpayers who meet the requirements to be an account holder
under the provisions of this act.
(b) Scope.--
(1) For taxable years beginning after December 31, 2006,
a resident of this Commonwealth shall be allowed to deposit
contributions into a disability savings account. The amount
of deposit for calendar year 2007 and subsequent years shall
not exceed the maximum amount permitted to be given under the
provisions of section 2503 of the Internal Revenue Code of
1986 (Public Law 99-514, 26 U.S.C. § 2503).
(2) For tax years beginning after December 31, 2006, an
employer may offer a disability savings account program to
the employer's employees.
(c) Duty to inform employees.--An employer that offers a
disability savings account program shall inform all employees in
writing of the availability of the disability savings account
program and the Federal and State tax status of contributions
made pursuant to this act before making contributions. An
employee eligible to become an account holder may designate
another person to receive such information on his behalf.
(d) State income tax exclusion.--
(1) Any increase in the value of a disability savings
account and any payment or distribution from a disability
savings account that is used exclusively to pay qualified
disability expenses shall be excluded from taxation under
Article III of the act of March 4, 1971 (P.L.6, No.2), known
as the Tax Reform Code of 1971.
(2) A payment or distribution from a disability savings
account that is used for any purpose other than to pay
qualified disability expenses shall be included in income
20090SB0131PN0103 - 5 -
under Article III of the Tax Reform Code of 1971 to the
extent that the amounts paid or distributed were not
previously included in income. The cost recovery method shall
be used to determine the portion of the payment or
distribution to be included in income.
(e) Other exclusions.--Amounts deposited into accounts,
earnings on accounts and amounts withdrawn from accounts which
are used for qualified disability expenses of the account holder
shall not be considered available assets or income for the
purpose of assessing liability for care and maintenance of the
account holder and shall not be expended for care and
maintenance, as such terms are used in the act of October 20,
1966 (3rd Sp.Sess., P.L.96, No.6), known as the Mental Health
and Mental Retardation Act of 1966, and in the act of June 13,
1967 (P.L.31, No.21), known as the Public Welfare Code.
Section 4. Distribution of account funds.
(a) Authorized purposes.--The account administrator shall
utilize funds held in a disability savings account solely to pay
the qualified disability expenses of the account holder.
(b) Submission of documentation.--The account holder may
submit documentation of qualified disability expenses paid by
the account holder during the tax year to the account
administrator. The account administrator shall reimburse the
account holder from the account holder's account for qualified
disability expenses.
(c) Limitation.--Funds held in a disability savings account
may not be used to cover expenses of the account holder that are
otherwise covered by a health plan or a trust established under
section 1917 of the Social Security Act (49 Stat. 620, 42 U.S.C.
§ 1396p).
20090SB0131PN0103 - 6 -
(d) Advances permissible.--If an employer makes
contributions to a disability savings account program on a
periodic installment basis, the employer may advance to an
employee, interest free, an amount necessary to cover qualified
disability expenses incurred that exceed the amount in the
employee's disability savings account when the expense is
incurred, if the employee agrees to repay the advance from
future installments or when the individual ceases to be an
employee of the employer.
Section 5. Account withdrawals.
(a) General rule.--Notwithstanding subsections (c), (d), (e)
and (f), an account holder may withdraw money from the account
holder's disability savings account for any purpose other than a
purpose described in section 4(a). Money withdrawn pursuant to
this subsection is income for the purposes of the act of March
4, 1971 (P.L.6, No.2), known as the Tax Reform Code of 1971.
(b) Effect of withdrawal.--Subject to subsection (c), if an
account holder withdraws money for any purpose other than a
purpose described in section 4(a) at any other time, all of the
following apply:
(1) The amount of the withdrawal is income for the
purposes of the Tax Reform Code of 1971 in the tax year of
the withdrawal.
(2) Interest earned on the amount withdrawn from the
account during the tax year in which a withdrawal under this
subsection is made is income for purposes of the Tax Reform
Code of 1971.
(3) The amount of the withdrawal may not be excluded as
provided in section 3(e).
(c) Bankruptcy.--The amount of disbursement of any assets of
20090SB0131PN0103 - 7 -
a disability savings account pursuant to a filing for protection
under Federal bankruptcy law by an account holder shall not be
construed as a withdrawal for purposes of this section. The
amount of such disbursement shall not be subject to taxation
under the Tax Reform Code of 1971, and subsection (b) shall not
apply.
(d) Marital dissolution.--An account holder's interest in a
disability savings account is not an asset which may be
transferred to an account holder's spouse or former spouse under
a divorce or separation instrument.
(e) Death of an account holder.--Upon the death of the
account holder, the account administrator shall distribute the
principal and accumulated interest of the disability savings
account to the estate of the deceased account holder.
(f) Transfers and postemployment account maintenance.--
(1) An account holder may elect to transfer an account
from an incumbent account administrator to a successor
account administrator, which may be an administrator of a
disability savings account program in which the employer of
the account holder participates.
(i) The account holder shall provide not less than
30 days' written notice to the incumbent account
administrator of the account holder's intention to effect
a transfer of the account, which notice shall include the
address of such successor account administrator.
(ii) Not more than 30 days after receipt of the
notice referred to in subparagraph (i), the incumbent
account administrator shall mail a check to the successor
account administrator specified by the account holder.
(2) If an employee is no longer employed by an employer
20090SB0131PN0103 - 8 -
that participates in a disability savings account program and
the employee, not more than 60 days after the individual's
final day of employment, requests in writing to the former
employer's account administrator that the account remain with
that administrator and that account administrator agrees to
retain the account, the money in the disability savings
account may be utilized for the benefit of the employee and
subject to this act and remain exempt from taxation to the
extent provided in and pursuant to this act.
(i) Not more than 30 days after the expiration of
the 60-day period, if the account administrator does not
elect to retain the former employee's account or if the
account holder does not elect to transfer such account as
provided in subparagraph (iii) or (iv), the employer
shall mail a check to the former employee at the
employee's last known address equal to the amount in the
account on that day, and that amount is subject to
taxation.
(ii) If an account holder becomes employed with a
different employer that participates in a disability
savings account program, the account holder may transfer
a disability savings account to that new employer's
account administrator.
(iii) If an account holder does not transfer a
disability savings account to a new employer's account
administrator pursuant to subparagraph (ii), the account
holder may transfer the account to an account
administrator of the account holder's choice.
(iv) If the account holder notifies the prior
employer of the account holder's election to transfer the
20090SB0131PN0103 - 9 -
account pursuant to the provisions of subparagraph (iii)
or (iv), the prior account administrator shall mail a
check to the successor account administrator at the
address of such successor account administrator.
Section 6. Other actions.
The Secretary of Public Welfare shall promulgate regulations,
apply for waivers or seek other approvals from one or more
Federal agencies as may be necessary to effectuate the
provisions of this act.
Section 7. Effective date.
This act shall take effect in 60 days.
20090SB0131PN0103 - 10 -