Senate Bill No. 271

Senate Bill No. 271-Committee on Finance

CHAPTER

687

AN ACT relating to qualified state tuition programs; establishing a trust fund for the prepayment of tuition at an institution of higher education; providing for the administration of the trust fund; providing that prepaid tuition contracts may be purchased until July 1, 2001; providing for the expiration of the trust fund when all obligations under the prepaid tuition contracts have been performed; and providing other matters properly relating thereto.

[Approved July 17, 1997]

THE PEOPLE OF THE STATE OF NEVADA, REPRESENTED IN SENATE AND ASSEMBLY, DO ENACT AS FOLLOWS:

Section 1. Title 31 of NRS is hereby amended by adding thereto a new chapter to consist of the provisions set forth as sections 2 to 22, inclusive, of this act.
Sec. 2. As used in this chapter, unless the context otherwise requires, the words and terms defined in sections 3 to 8, inclusive, of this act have the meanings ascribed to them in those sections.
Sec. 3. "Board" means the board of trustees created pursuant to section 11 of this act.
Sec. 4. "Prepaid tuition contract" means the contract created pursuant to section 13 of this act.
Sec. 5. "Purchaser" means a person who makes or is obligated to make payments for tuition in accordance with a prepaid tuition contract.
Sec. 6. "Qualified beneficiary" means a person for whom tuition is paid pursuant to a prepaid tuition contract.
Sec. 7. "System" means the University and Community College System of Nevada.
Sec. 8. "Trust fund" means the Nevada higher education tuition trust fund created pursuant to section 9 of this act.
Sec. 9. 1. The Nevada higher education tuition trust fund is hereby created within the state treasury to allow the cost of tuition to be paid in advance of enrollment at an institution of higher education.
2. The trust fund consists of payments received pursuant to:
(a) A prepaid tuition contract;
(b) A bequest, endowment or grant from the Federal Government; or
(c) Any other public or private source of money.
3. Money in the trust fund that is not expended during any biennium does not revert to the state general fund at any time.
Sec. 10. 1. The state treasurer shall administer the trust fund.
2. As administrator of the trust fund, the state treasurer:
(a) Shall maintain the financial records of the trust fund;
(b) Shall invest the property in the trust fund pursuant to the policies for investment established by the board pursuant to section 16 of this act;
(c) Shall manage any account associated with the trust fund;
(d) Shall maintain any instruments that evidence investments made with property from the trust fund;
(e) May contract with vendors for any good or service that is necessary to carry out the provisions of this chapter;
(f) May hire such employees as are necessary to carry out the provisions of this chapter, who must be paid out of the assets of the trust fund; and
(g) May perform any other duties necessary to administer the trust fund.
Sec. 11. 1. There is hereby created a board of trustees.
2. The board consists of five members composed of:
(a) The state treasurer, who may name a designee to serve on the board on his behalf.
(b) The director of the department of administration, who may name a designee to serve on the board on his behalf.
(c) The chancellor of the system, who may name a designee to serve on the board on his behalf.
(d) Two members appointed by the governor. A member who is appointed by the governor must possess knowledge, skill and experience in the field of:
(1) Accounting;
(2) Finance;
(3) Investment management; or
(4) Marketing.
3. A member of the board who is appointed by the governor:
(a) Serves for a term of 4 years;
(b) Except as otherwise provided in paragraph (c), may be reappointed by the governor; and
(c) Except as otherwise provided in this paragraph, may serve for only two terms. A member who is appointed to fill a vacancy in an unexpired term that is not longer than 3 years may serve two terms in addition to the unexpired term.
4. The governor shall designate a member of the board to serve as the initial chairman of the board. Thereafter, the board shall annually elect a chairman from its members.
5. Each member of the board serves without compensation, except that each member is entitled to receive:
(a) The per diem allowance and travel expenses provided for state officers and employees generally; and
(b) Reimbursement for any other actual and reasonable expense incurred while performing his duties.
Sec. 12. 1. The board shall develop a program for the prepayment of tuition at a guaranteed rate which is established based on the annual actuarial study required pursuant to section 19 of this act for undergraduate studies at a university or community college that is a member of the system.
2. The board shall establish rules for the implementation of the program, including, without limitation, rules setting forth requirements for residency, a limit on the number of qualified beneficiaries, the termination, withdrawal and transfer of money paid into the trust fund, the time within which the money paid into the trust fund must be used, and payment schedules.
Sec. 13. 1. The board may enter into a prepaid tuition contract with a purchaser.
2. The board shall create a prepaid tuition contract in accordance with the provisions of this section.
3. The prepaid tuition contract must include, without limitation:
(a) The terms and conditions under which the purchaser shall remit payment, including, without limitation:
(1) The amount and number of payments that are required from the purchaser on behalf of the qualified beneficiary;
(2) The date upon which each payment is due; and
(3) A provision for a reasonable penalty for a delinquent payment or default.
(b) The name and date of birth of the qualified beneficiary on whose behalf the prepaid tuition contract is drawn.
(c) The terms and conditions under which another person may be substituted as the qualified beneficiary.
(d) The terms and conditions under which the purchaser, or another person designated by the purchaser, may terminate the prepaid tuition contract, receive a refund of money that he has paid into the trust fund or withdraw money that he has paid into the trust fund, including, without limitation, a provision allowing the board to impose a fee that amounts to more than a de minimis penalty.
(e) A provision that the board shall, after making a reasonable effort to contact the purchaser, report any money that has been deposited under a prepaid tuition contract that has not been terminated and has not been used within a specified period to the state treasurer for proper disposition.
(f) The number of semesters for which the purchaser is contracting.
(g) A provision that money paid into the trust fund under a prepaid tuition contract may be applied toward tuition at:
(1) A university or community college that is a member of the system;
(2) An accredited college or university in this state that is not a member of the system; or
(3) An accredited community college, college or university in another state.
Payments authorized pursuant to subparagraph (2) or (3) must not exceed the projected highest payment for tuition for the current academic year at a university that is a member of the system.
(h) Any other term or condition that the board considers necessary or proper.
Sec. 14. 1. The board shall actively promote and market use of the trust fund.
2. The board shall, before it enters into a prepaid tuition contract with a purchaser, solicit the opinion of:
(a) The Securities and Exchange Commission regarding the application of federal law regarding securities to the trust fund; or
(b) An independent legal counsel to ensure that the method of structuring and offering the trust fund is in compliance with federal law regarding securities.
3. The board may:
(a) Require a reasonable length of residence in the state to become a qualified beneficiary.
(b) Restrict the number of qualified beneficiaries.
Sec. 15. The board:
1. May modify the rules for the implementation of the program established pursuant to subsection 2 of section 12 of this act.
2. May establish agreements to fulfill its obligations under the prepaid tuition contracts.
3. May contract for any necessary good or service, including, without limitation, the power to engage financial consultants, actuaries or legal counsel.
4. May procure insurance against any loss in connection with the property, assets or activities of the trust fund, the state treasurer or the board.
5. May solicit and accept a gift, including, without limitation, a bequeathment or other testamentary gift, grant, loan or aid from any source.
6. Shall solicit answers to requests for rulings from the Internal Revenue Service regarding the tax status of fees paid to or on behalf of a purchaser or a qualified beneficiary pursuant to a prepaid tuition contract.
Sec. 16. 1. The board shall create a comprehensive plan that specifies the policies for investment which the state treasurer shall follow in his administration of the trust fund.
2. The board may authorize the state treasurer to invest the property of the trust fund in:
(a) A bond, note, certificate or other general obligation of the State of Nevada, or of a county, city, general improvement district or school district of the State of Nevada.
(b) A corporate bond of a corporation created by or existing under the laws of the United States or of a state, district or territory of the United States with a rating not lower than "BAA/BBB" by a nationally recognized rating service. The total amount invested in such bonds must not exceed 5 percent of the book value of the total fixed income investments of the trust fund.
(c) Commercial paper of a corporation created by or existing under the laws of the United States or of a state, district or territory of the United States or of a wholly owned subsidiary of such a corporation with a rating not lower than A-3 or P-3 by a nationally recognized rating service.
(d) A bond, note, debenture or other valid obligation that is issued by the Treasury of the United States.
(e) A bond, note, debenture or other security that is fully guaranteed by the United States in:
(1) The Federal Farm Credit Bank;
(2) The Federal National Mortgage Association;
(3) The Federal Home Loan Bank; or
(4) The Federal Home Loan Mortgage Corporation.
(f) A bond, note, debenture or other security in the Student Loan Marketing Association, regardless of whether it is guaranteed by the United States.
(g) Money market mutual funds that:
(1) Are registered with the Securities and Exchange Commission;
(2) Are rated by a nationally recognized rating service as "A" or its equivalent, or better; and
(3) Invest only in securities issued by the Federal Government or agencies of the Federal Government or in repurchase agreements fully collateralized by such securities.
The total dollar amount invested in such mutual funds must not exceed 20 percent of the total dollar amount of the trust fund that is invested.
(h) Common or preferred stock of a corporation created by or existing under the laws of the United States or of a state, district or territory of the United States, if:
(1) The stock of the corporation is:
(I) Listed on a national stock exchange; or
(II) Traded in the over-the-counter market, if the price quotations for the over-the-counter stock are quoted by the National Association of Securities Dealers Automated Quotations System (NASDAQ);
(2) The outstanding shares of the corporation have a total market value of not less than $50,000,000;
(3) The maximum investment in stock is not greater than 60 percent of the book value of the total investments of the trust fund;
(4) The amount of an investment in a single corporation is not greater than 3 percent of the book value of the assets of the trust fund; and
(5) The total amount of shares owned by the trust fund is not greater than 5 percent of the outstanding stock of a single corporation.
(i) A covered call or put option on securities that are traded on one or more of the regulated exchanges in the United States.
(j) A pooled or commingled real estate fund or a real estate security that is managed by a corporate trustee or by an investment advisory firm that is registered with the Securities and Exchange Commission, either of which may be retained by the board as an investment manager. The shares and the pooled or commingled fund must be held in trust. The total book value of an investment made under this paragraph must not at any time be greater than 5 percent of the total book value of all investments of the trust fund.
3. The state treasurer shall exercise the standard of care in investing the property of the fund that a person of prudence, discretion and intelligence would exercise in the management of his own affairs, given the prevailing circumstances, not in regard to speculation but rather to the permanent disposition of the property, considering the potential income from and the probable safety of his capital.
4. Subject to the terms, conditions, limitations and restrictions set forth in this section, the state treasurer may sell, assign, transfer or dispose of the property and investments of the trust fund upon the approval of a majority of the board.
5. The assets of the trust fund:
(a) Must be maintained, invested and expended solely for the purposes of this chapter; and
(b) Must not be loaned, transferred or otherwise used for a purpose other than the purposes of this chapter.
6. The state treasurer shall credit any income derived from an investment or a gain from a sale or exchange of an investment to the trust fund.
7. The state treasurer shall acquire each investment for the trust fund at a price not to exceed the prevailing market value for such an investment.
8. Each investment in the trust fund must be clearly marked to indicate ownership by the trust fund.
9. The state treasurer, an employee of the state treasurer, or a member or employee of the board shall not:
(a) Have a direct or indirect interest in the income, gain or profit of an investment that the state treasurer makes;
(b) Receive pay or emolument for his services in connection with an investment that the state treasurer makes; or
(c) Become an endorser, surety or obligor for money that is borrowed from the trust fund.
10. If the annual actuarial study performed pursuant to section 19 of this act reveals that there is insufficient money to ensure the actuarial soundness of the trust fund, the board shall modify the terms of subsequent prepaid tuition contracts.
11. The terms, conditions, limitations and restrictions regarding investments of the trust fund listed in this section apply only at the time an investment is originally acquired and must not be construed to require the liquidation of an investment at any time.
Sec. 17. The board shall:
1. Prepare an annual report setting forth in appropriate detail an accounting of the trust fund and a description of the financial condition of the trust fund at the close of each fiscal year, including, without limitation, a statement of projected receipts, disbursements and operating costs of the trust fund.
2. Submit the report prepared pursuant to subsection 1 on or before March 31 of each year:
(a) In odd-numbered years, to the governor, the senate standing committee on finance and the assembly standing committee on ways and means.
(b) In even-numbered years, to the governor and the interim finance committee.
Sec. 18. The board shall contract with a certified public accounting firm to perform an annual audit of the accounts and records of the state treasurer and the board showing the receipts to and disbursements from the trust fund. The cost of the audit must be borne by the trust fund. The state treasurer shall make available for inspection all records necessary to perform the audit.
Sec. 19. The board shall contract with a certified actuary to perform an annual actuarial study, the cost of which must be borne by the trust fund. The state treasurer shall make available for inspection all records necessary to perform the actuarial study.
Sec. 20. The State of Nevada, an agency, county, municipality or other political subdivision of the state, or any other public or private employer may enter into an agreement to remit payments toward a prepaid tuition contract on behalf of an employee through payroll deductions.
Sec. 21. The provisions of this chapter must not be construed as a promise or guarantee that a qualified beneficiary:
1. Will be admitted to, allowed to continue enrollment at or graduated from a community college or university; or
2. Will have the full cost of his tuition paid at a community college, college or university that is not a member of the system.
Sec. 22. An act or undertaking of the board does not constitute a debt of the State of Nevada, or any political subdivision thereof, or a pledge of the full faith and credit of the State of Nevada, or of any political subdivision thereof, and is payable solely from the trust fund.
Sec. 23. Notwithstanding the provisions of paragraph (a) of subsection 3 of section 11 of this act, as soon as practicable after October 1, 1997, the governor shall, pursuant to paragraph (d) of subsection 2 of section 11 of this act, appoint to the board:
1. One member whose initial term expires on June 30, 1999; and
2. One member whose initial term expires on June 30, 2001.
Sec. 24. 1. The board shall notify the governor when it has performed all duties and obligations pursuant to any prepaid tuition contract entered into before July 1, 2001.
2. Notwithstanding the provisions of subsection 3 of section 9 of this act, when the board notifies the governor pursuant to subsection 1 that it has performed all duties and obligations pursuant to any prepaid tuition contract entered into before July 1, 2001, all assets of the trust fund revert to the state general fund.
Sec. 25. 1. This act becomes effective on October 1, 1997, and, except as otherwise provided in subsection 2, expires by limitation when the board notifies the governor pursuant to subsection 1 of section 24 of this act that it has performed all duties and obligations pursuant to any prepaid tuition contract entered into before July 1, 2001.
2. Sections 12, 13 and 14 of this act expire by limitation on July 1, 2001.
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