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June 17, 2005
Holiday Inn
Cody, Wyoming
Senators Hank Coe, Bill Hawks, Grant Larson and John Schiffer;
Representatives Roy Cohee, Randall Luthi, Bryan Pedersen and Wayne Reese.
Senators Kathryn Sessions and Jayne Mockler;
Representatives Ross Diercks and Doug Osborn.
Dave Gruver
Please refer to Appendix 1 to review the Committee Sign-in Sheet for a list of other individuals who attended the meeting.
All meeting materials and handouts provided to the Committee by the Legislative Service Office (LSO), public officials, lobbyists, and the public are referenced in the Meeting Materials Index, attached to the minutes. These materials are on file at the LSO and are part of the official record of the meeting.
Senate President Larson called the meeting to order at 1:00 p.m. He moved Representative Cohee be elected chairman. Speaker Luthi seconded. The motion passed unanimously. Speaker Luthi moved President Larson be elected vice-chairman. The motion passed unanimously.
College savings plan
State Treasurer Cynthia Lummis introduced the issue of the college savings (529) program. State legislation was initially enacted in 1999 to take advantage of a federal tax code provision allowing an exemption from income taxation of earnings on funds within a qualifying 529 plan.
Sharon Garland, Deputy State Treasurer, Betsy Anderson, staff attorney with the State Treasurer's Office and Andrea Feirstein of AKF Consulting, consultant to the State Treasurer's Office on the 529 plan addressed the Committee. They provided the following documents regarding the plan: a memorandum from the Treasurer's Office, a report from the consultant, a summary of options for the plan, financial reports on the plan and two updated charts to the summary of options. Appendices 3 (a) through (f). Ms. Garland stated that the plan has not been providing sufficient returns to attract enough participants to keep management fees at a low enough rate to be competitive.
Ms. Feirstein stated that when the Wyoming program came into the market in 1999 it was a new and innovative program with a third party selling the plans. But by 2000 other fund companies came into the same market from larger states and with program managers paying distributors a larger fee, thus the distributors were more inclined to sell other programs. Wyoming, however, has no state income tax, thus cannot provide a state income tax deduction for investments in a 529 plan.
The federal tax exemption for the 529 plan is due to expire at the federal level in 2010. Legislation has been introduced to make the exemption permanent. Ms. Feirstein also testified that a 529 program is transferable to other family members. A 529 account is a completed gift for purposes of the IRS code, but the creator of the account is able to change the beneficiaries. If the account holder dies the funds do not return to the estate of the account holder. She noted that there were proposals to change various aspects of the IRS code that could impact "these extremely favorable tax treatments".
The Wyoming population appears to have a need for the product, given the education of the population, number of families earning over $50,000 and the number of potential college students. Thus the consultant was not recommending termination of the plan.
Ms. Feirstein was not optimistic regarding the potential new market, thus the option of issuing a new RFP for a new program manager is not being recommended. Another option reviewed was to partner with another state. Those potential partners were reviewed and comparisons of attributes for each partnership is shown in material provided. One of the factors reviewed is management fees charged. Other aspects of potential states to assume management of the program, were potential marketing of the plan and types of management of the accounts within the plan.
The Committee discussed the difference in plans with no upfront fees and those with upfront fees but lower continued management fees. Ms. Feirstein noted that even if the federal exemption was not extended, qualified withdrawals are taxed at the beneficiaries' tax rate rather than the tax rate of the person making the contribution; which is usually advantageous.
Committee members questioned whether the tax feature and the ability to pool with other programs in order to take advantage of market size and advantage of size of the number of participants were at the heart of the competitive disadvantage. President Larson noted that there are only 193 constituents taking advantage of the program, Wyoming has no income tax break and has begun a scholarship program; all of which raise the question of why Wyoming would continue the program. The State Treasurer stated that the 529 plans can be used to attend schools in other states. She also noted that the Wyoming plan has not been actively marketed in the past year in order to review the feasibility of taking other actions concerning the plan. That probably has negatively impacted the number of accounts in the plan. She noted that Wyoming might be able to continue to have a state plan marketed in Wyoming that is affiliated with and marketed by another state. The State Treasurer's Office has considered the option of terminating a plan. The option that seemed best to that Office was to continue a plan with another state marketing the plan.
Ms. Feirstein stated that the cutback on the marketing did have a negative impact on the number of accounts. She also stated that other states have affiliated with a loyalty program that provides rebates on certain purchases, which rebates flow to the 529 savings plan. When the Colorado plan was switched to that program the state's plan account numbers tripled. There are 5,700 members of that rebate plan in Wyoming currently. The number of those not linked to a 529 program was unknown, but Ms. Feirstein estimated that perhaps 80% or more of those customers were not using a 529 program.
Committee members questioned the cost Wyoming would incur and whether those costs would be covered by Colorado's assessment of 10 basis points for accounts. Ms. Feirstein suggested that should be negotiated with Colorado if the determination were made to go that route. In response to the question of what other costs would be associated with rolling over the accounts to another entity, Ms. Feirstein stated that the costs should not be that high and that the current program manager would be asked to assume those costs.
The State Treasurer asked for the Committee's direction as to whether the Treasurer should work on transitioning the program to being run by another state. Vice-chairman Larson moved that the Treasurer's Office continue with negotiations with other states on a possible move of the program administration to another state. LSO staff and Ms. Anderson noted that there might need to be legislation to make the change effective. Representative Pedersen stated that he believed that program performance was a factor in low participation. He noted that the Colorado plan does contain options that were favorable in his view. The State Treasurer stated that her office could also look to other states and would do so. The motion was seconded by Senator Coe and passed.
University of Wyoming Securities Law
Rick Miller, University of Wyoming vice-president for governmental relations addressed the Committee regarding legislation last session which modernized and liberalized the University's securities law. The University has issued bonds since the passage of that legislation and Mr. Miller stated that the legislation has already provided a financial benefit to the issuance of bonds.
He provided written material regarding the bill and the issuance of bonds. The number of outstanding bonds and latest issuance were reviewed. (Appendix 4).
Investment of state trust funds
The Committee discussed the issue of trust funds and the investment of trust funds. LSO staff explained the status of the issue before the SF 122 Merit Scholarship Committee, the Joint Appropriations Committee and the Capital Financing and Investment Committee. The general issue had been assigned to the Joint Appropriations Committee by the Management Council earlier this year. Vice-chairman Larson stated the issue should be on the Management Committee's agenda for the July meeting.
The Committee adjourned at 2:50 p.m.
Respectfully submitted,
Representative Roy Cohee, Chair