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Please see http://docs.legis.wisconsin.gov for the production version.
Analysis by the Legislative Reference Bureau
401Kids savings program
This bill creates the 401Kids Savings Program and requires the Department of
Employee Trust Funds (ETF) to establish and administer the program or to select
a vendor to administer the program.
The bill provides several ways of establishing a 401Kids savings account. First,
the bill requires the state registrar to submit to ETF a copy of the record of birth for
each child born in Wisconsin on or after the effective date of the bill and requires ETF
to establish a 401Kids savings account for the child, with the child designated as the
account beneficiary and each parent identified in the record of birth designated as
an account owner. Second, the bill requires each court order granting an adoption
of a minor in Wisconsin on or after the effective date of the bill to be submitted to ETF
and requires ETF to establish a 401Kids savings account for the child, with the child

designated as the account beneficiary and each parent identified in the court order
designated as an account owner. Third, any other person may establish a 401Kids
savings account by making application for the account, designating an individual
who is a minor as the account beneficiary, and making an initial contribution to the
account. If ETF establishes a 401Kids savings account based on the receipt of a birth
record or adoption order for the account beneficiary, ETF must deposit $25 into the
account. When an account beneficiary reaches 18 years of age, the account
beneficiary becomes the only account owner.
Under the bill, after ETF establishes the account, the account beneficiary,
account owner, or any person authorized by the account beneficiary or account owner
may contribute to the account. Distributions from an account may be used only to
pay for a “qualified expense,” which is defined as any of the following: 1) any cost
incurred by an account beneficiary in connection with the account beneficiary
attending an institution of higher education or receiving any postsecondary training;
2) any cost incurred by an account beneficiary in connection with the account
beneficiary purchasing the account beneficiary's first home; 3) a medical emergency
of the account beneficiary; or 4) any cost incurred by an account beneficiary during
the account beneficiary's retirement relating to housing, food, clothing, health care,
transportation, or other household needs. The department may terminate an
account under certain circumstances, including if the account balance is $0, the
account beneficiary dies, or there has been no activity on the account for a period of
10 years. If the department terminates an account, the department must distribute
the account balance to the account owner or the account owner's estate. If the
department contributed to an account, the account owner must repay the full amount
of all state contributions if the account beneficiary is not a resident of this state at
the time of any distribution from the account.
The bill imposes certain duties on ETF, including establishing investment
guidelines for 401Kids savings accounts. The bill also requires the department to
conduct public outreach and fundraising to generate donations for the 401Kids
savings program. The department must develop a plan that allows the department,
after the program is fully operational, to devote revenues generated under the
program to fund the establishment of future accounts. The bill also authorizes the
department to enter into contracts for professional services to assist in administering
and evaluating the program. The department may promulgate rules to implement
and administer the program. Also under the bill, the department may charge
reasonable fees to account owners to repay the general fund for costs related to
establishing the program.
The bill allows ETF to select a vendor to administer the program using a
competitive proposal process. If ETF elects to contract with a vendor, the contract
between ETF and the vendor must require the vendor to reimburse the state for the
state's administrative costs for the program; select an accounting firm to annually
audit the program; and provide a quarterly account statement to each account owner.
The bill also creates a segregated fund designated the 401Kids savings program
trust fund, which consists of revenue from account enrollment fees and account
contributions, revenue from distributions and fees paid by the vendor, account owner

repayments of board contributions, and fees for repayment to the general fund for
initial costs to establish the program. This trust fund is managed by the State of
Wisconsin Investment Board but is subject to guidelines established by the board.
However, SWIB's investment management duty excludes any funds under the
management and control of a vendor selected by ETF.
The bill directs the Department of Revenue to establish a program under which
taxpayers may direct that a portion of their tax refund be contributed to a 401Kids
savings account.
For further information see the state fiscal estimate, which will be printed as
an appendix to this bill.
The people of the state of Wisconsin, represented in senate and assembly, do
enact as follows:
AB974,1 1Section 1. 16.705 (1b) (e) of the statutes is created to read:
AB974,3,22 16.705 (1b) (e) The department of employee trust funds under s. 40.96 (7).
AB974,2 3Section 2. 16.71 (5t) of the statutes is created to read:
AB974,3,54 16.71 (5t) The department shall delegate authority to the department of
5employee trust funds to enter into vendor contracts under s. 40.96 (8).
AB974,3 6Section 3. 20.005 (3) (schedule) of the statutes: at the appropriate place, insert
7the following amounts for the purposes indicated: - See PDF for table PDF - See PDF for table PDF - See PDF for table PDF - See PDF for table PDF - See PDF for table PDF
AB974,4 8Section 4. 20.515 (1) (a) of the statutes is amended to read:
AB974,4,5
120.515 (1) (a) Annuity supplements and payments. A sum sufficient to pay the
2benefits authorized under ss. 40.02 (17) (d) 2. and 40.27 (1), (1m) and (3) in excess
3of the amounts payable under other provisions of ch. 40, except subch. X, and to
4reimburse any amounts expended under par. (w) for the costs of administering the
5benefits provided under ss. 40.02 (17) (d) 2. and 40.27 (1), (1m) and (3).
AB974,5 6Section 5. 20.515 (2) of the statutes is created to read:
AB974,4,11 720.515 (2) 401Kids savings program. (a) Administrative expenses; initial
8expenses.
Biennially, the amounts in the schedule for the administrative expenses
9of the 401Kids savings program established under s. 40.96, including for the initial
10establishment of the 401Kids savings program and the expenses of promoting the
11program and establishing accounts.
AB974,4,1312 (j) Gifts, grants, and donations. All moneys received from gifts, grants, and
13donations to carry out the purposes for which made.
AB974,4,1614 (q) Payment of distributions. From the 401Kids savings program trust fund,
15a sum sufficient for the payment of distributions under s. 40.96, including
16distributions upon account termination.
AB974,4,2117 (r) Administrative expenses; 401Kids savings program trust fund. Biennially,
18from the 401Kids savings program trust fund, the amounts in the schedule for the
19administrative expenses of the 401Kids savings program established under s. 40.96,
20including the expense of promoting the program, and all moneys transferred to the
21fund under s. 40.96 (11) for repayment of the amounts appropriated under par. (a).
AB974,5,222 (t) Vendor fees. From the 401Kids savings program trust fund, all moneys
23received as repayments under s. 40.96 (6) (c) or (d), and all moneys received as fees
24from the vendor under s. 40.96 (8) (c) 1. that are designated for funding 401Kids

1savings accounts, for the purpose of funding 401Kids savings accounts under s. 40.96
2(4) (d) 2.
AB974,6 3Section 6. 25.14 (1) (a) 20. of the statutes is created to read:
AB974,5,44 25.14 (1) (a) 20. The 401Kids savings program trust fund.
AB974,7 5Section 7. 25.17 (1) (zk) of the statutes is created to read:
AB974,5,76 25.17 (1) (zk) 401Kids savings program trust fund (s. 25.90), but subject to sub.
7(2) (h);
AB974,8 8Section 8. 25.17 (2) (h) of the statutes is created to read:
AB974,5,129 25.17 (2) (h) Invest the moneys belonging to the 401Kids savings program trust
10fund in a manner consistent with the guidelines established under s. 40.96 (2) (b),
11unless the moneys are under the management and control of a vendor selected under
12s. 40.96 (8).
AB974,9 13Section 9. 25.90 of the statutes is created to read:
AB974,5,19 1425.90 401Kids savings program trust fund. There is established a separate
15nonlapsible trust fund designated as the 401Kids savings program trust fund,
16consisting of all revenue from enrollment fees for and contributions to 401Kids
17savings accounts established under s. 40.96, from distributions and fees paid by the
18vendor under s. 40.96 (8), fees paid by account owners under s. 40.96 (11), and from
19repayments under s. 40.96 (6) (c) and (d).
AB974,10 20Section 10. Chapter 40 (title) of the statutes is amended to read:
AB974,5,2221 CHAPTER 40
22 PUBLIC EMPLOYEE TRUST FUND
AB974,5,23 23and 401Kids savings program
AB974,11 24Section 11. 40.08 (8) (a) (intro.) of the statutes is amended to read:
AB974,6,2
140.08 (8) (a) (intro.) Benefits Except as provided in s. 40.96, benefits provided
2under this chapter shall be considered abandoned as follows:
AB974,12 3Section 12. Subchapter X of chapter 40 [precedes 40.96] of the statutes is
4created to read:
AB974,6,55 CHAPTER 40
AB974,6,66 SUBCHAPTER X
AB974,6,77 401Kids Savings program
AB974,13 8Section 13. 40.96 of the statutes is created to read:
AB974,6,9 940.96 401Kids savings program. (1) Definitions. In this section:
AB974,6,1110 (a) “Account beneficiary” means an individual for whom the department
11establishes a 401Kids savings account under sub. (4) (a), (b), or (c).
AB974,6,1212 (b) “Account owner” means the following:
AB974,6,1513 1. If the account beneficiary is less than 18 years of age, any individual
14designated by the department as an account owner in establishing a 401Kids savings
15account under sub. (4) (a), (b), or (c).
AB974,6,1616 2. If the account beneficiary is at least 18 years of age, the account beneficiary.
AB974,6,1817 (c) “Dependent” means a dependent as defined under section 152 of the Internal
18Revenue Code.
AB974,6,1919 (d) “Qualified expense” means any of the following:
AB974,6,2320 1. Any cost incurred by an account beneficiary in connection with the account
21beneficiary attending an institution of higher education or receiving any
22postsecondary training, including expenses for tuition, fees, books, supplies,
23equipment, food, or housing.
AB974,7,3
12. Any cost incurred by an account beneficiary in connection with the account
2beneficiary purchasing the account beneficiary's first home, including mortgage
3payments, a down payment, or closing costs.
AB974,7,54 3. Any cost incurred by an account beneficiary related to a medical emergency
5of the account beneficiary.
AB974,7,86 4. Any cost incurred by an account beneficiary during the account beneficiary's
7retirement relating to housing, food, clothing, health care, transportation, or other
8household needs.
AB974,7,9 9(2) Duties of the department. The department shall do all of the following:
AB974,7,1110 (a) Except as provided under sub. (8), establish and administer a 401Kids
11savings program as described in this section.
AB974,7,1312 (b) Establish investment guidelines for contributions to and the earnings on
13401Kids savings accounts established under this section.
AB974,7,1514 (c) Pay distributions from 401Kids savings accounts established under this
15section.
AB974,7,1916 (d) Ensure that, if the department changes vendors under sub. (8), the balances
17of 401Kids savings accounts established under this section are promptly transferred
18into investment instruments as similar to the original investment instruments as
19possible.
AB974,7,2120 (e) Conduct public outreach and fundraising to generate donations for the
21401Kids savings program.
AB974,7,2422 (f) Develop a plan that allows the department, after the program under this
23section is fully operational, to devote revenues generated under the program to fund
24the establishment of future 401Kids savings accounts under sub. (4).
AB974,8,3
1(3) Prohibition on use of trust fund moneys. The department may not expend
2any moneys from the public employee trust fund for its activities under this
3subchapter.
AB974,8,8 4(4) Establishing accounts; account contributions by department. (a) For
5each record of birth submitted to the department under s. 69.14 (1) (a), the
6department shall establish a 401Kids savings account under this section for the
7child, with the child designated as the account beneficiary and each parent identified
8in the record of birth designated as an account owner.
AB974,8,149 (b) For each court order granting an adoption of a minor submitted to the
10department under s. 48.94 (1), the department shall establish a 401Kids savings
11account under this section for the child, with the child designated as the account
12beneficiary and each parent identified in the court order designated as an account
13owner, if the department has not already established an account for the child under
14par. (a).
AB974,8,1615 (c) 1. Any person may establish a 401Kids savings account under this section
16by doing all of the following:
AB974,8,1917 a. Making application for the account, in the form and manner prescribed by
18the department, and providing all information required by the department for
19opening the account.
AB974,8,2020 b. Designating an individual who is a minor as the account beneficiary.
AB974,8,2221 c. Making an initial contribution to the account that is at least the minimum
22amount established by the department.
AB974,9,223 2. If the requirements under subd. 1. are satisfied, and a 401Kids savings
24account has not already been created for the account beneficiary under par. (a) or (b),

1the department shall establish a 401Kids savings account, designating the person
2who established the account as the account owner.
AB974,9,43 (d) Upon the department establishing an account under par. (a) or (b), the
4department shall promptly do all of the following:
AB974,9,65 1. Provide written notice of the account to each parent designated as an account
6owner.
AB974,9,87 2. From the appropriation under s. 20.515 (1) (a) or (t), deposit $25 into the
8account.
AB974,9,149 (e) If the department receives a court order granting an adoption of a minor and
10does not establish an account under par. (b) because the department has already
11established an account for the child under par. (a), the department shall update the
12account owner designation for the child's account to designate each parent identified
13in the court order as an account owner and to remove each parent identified in the
14record of birth as an account owner.
AB974,9,19 15(5) Contributions to accounts; qualified expenses. (a) An account
16beneficiary, an account owner, or any other individual authorized by an account
17beneficiary or account owner may contribute to a 401Kids savings account
18established under this section. The contribution may be made directly or as provided
19in the program established under s. 73.03 (77).
AB974,9,2220 (b) Distributions from an account established under this section may be made
21only to an account owner. An account owner may use moneys distributed from the
22account only to pay for qualified expenses.
AB974,9,25 23(6) Account termination; return of office contribution. (a) The department
24may terminate an account established under this section if any of the following
25occurs:
AB974,10,1
11. The account balance is $0.
AB974,10,22 2. The account beneficiary dies.
AB974,10,33 3. There has been no activity on the account for a period of 10 years.
AB974,10,54 4. Other circumstances determined by the department to be grounds for
5termination occur.
AB974,10,136 (b) Upon the termination of an account under par. (a), the department shall
7distribute any amount remaining in the account to the account owner or the account
8owner's estate. The department shall mail notice of the account termination to the
9last-known address of the account owner. If the department determines that an
10account is subject to termination under par. (a) 2., 3., or 4. and cannot with
11reasonable efforts locate the account owner within one year after making that
12determination, any amount remaining in the account is presumed abandoned under
13s. 177.13.
AB974,10,1914 (c) If the department contributed to an account as provided in sub. (4) (d) 2.,
15and the account beneficiary is not a resident of this state at the time of any
16distribution from the 401Kids savings account, the account owner shall repay to the
17department all contributions received under sub. (4) (d) 2. These payments shall be
18deposited into the 401Kids savings program trust fund and credited to the
19appropriation under s. 20.515 (1) (t).
AB974,10,23 20(7) Contracts with professionals. The department may enter into contracts
21for the services of accountants, attorneys, consultants, or other professionals to
22assist in the administration and evaluation of the 401Kids savings program
23established under this section.
AB974,11,2 24(8) Vendor. (a) The department may, in lieu of administering the program,
25select a vendor to administer the program. The department shall determine the

1factors to be considered in selecting an entity to be a vendor of the program under
2this section. Those factors shall include all of the following:
AB974,11,33 1. The entity's ability to satisfy record-keeping and reporting requirements.
AB974,11,54 2. The fees, if any, that the entity proposes to charge in connection with
5accounts established under this section.
AB974,11,76 3. The entity's plan for promoting the program and the investment that the
7entity is willing to make to promote the program.
AB974,11,98 4. The ability of the entity to augment the program with additional beneficial
9services related to the program.
AB974,11,1410 (b) If the department elects to have a vendor administer the program, the
11department shall solicit competitive sealed proposals using the process under s.
1216.75 (2m) from nongovernmental entities to serve as vendor of the program under
13this section and shall select the vendor on the basis of factors determined by the
14department under par. (a).
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