SB1310 HD1

SECTION 1. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"Chapter

individual housing accounts savings program

§ -1 Definitions. As used in this chapter:

"Board" means the individual housing accounts savings board.

"Employee" means a person who is eligible to participate in the program established in section -4.

"Employer" includes any individual, partnership, association, joint-stock company, trust, corporation, the personal representative of the estate of a deceased individual or the receiver, trustee, or successor of any of the same, employing any person, but shall not include the State or any political subdivision thereof or the United States.

"Program" means the individual housing accounts savings program.

§ -2 Individual housing accounts savings board. (a) There is established within the department of budget and finance for administrative purposes the individual housing accounts savings board.

(b) The board shall consist of eight members as follows:

(1) The director of finance or the director's designee, who shall serve as chairperson of the board;

(2) The director of human services or the director's designee;

(3) The director of commerce and consumer affairs or the director's designee;

(4) A representative of employers, to be appointed by the governor;

(5) A representative with experience in the field of investments, to be appointed by the governor;

(6) A representative of an association representing employees, to be appointed by the governor;

(7) A member of the senate, to be appointed by the president of the senate as a nonvoting advisory member of the board; and

(8) A member of the house of representatives, to be appointed by the speaker of the house of representatives as a nonvoting advisory member of the board.

(d) The term of office of each member of the board appointed by the governor shall be four years, but the members shall serve at the pleasure of the governor. A member shall be eligible for reappointment. If there is a vacancy for any reason, the governor shall make an appointment to become immediately effective for the unexpired term. The senate member shall serve at the pleasure of the president of the senate. The member of the house of representatives shall serve at the pleasure of the speaker of the house of representatives. The directors of finance, human services, and commerce and consumer affairs, or their designees, shall serve in an ex officio capacity.

(e) A majority of the voting members of the board shall constitute a quorum for the transaction of business.

(f) The members of the board shall serve without compensation but shall be reimbursed for travel and other necessary expenses in the performance of their official duties.

(g) The board may employ, without regard to chapter 76, staff necessary for the performance of its functions and fix their compensation.

§ -3 Duties of the board. The board shall:

(1) Establish, implement, and maintain the individual housing accounts savings program pursuant to section -4;

(2) Adopt rules pursuant to chapter 91 for the general administration of the program as provided in section -5;

(3) Direct the investment of the funds contributed to accounts in the plan consistent with the investment restrictions established by the board. The investment restrictions shall be consistent with the objectives of the plan, and the board shall exercise the judgment and care then prevailing that persons of prudence, discretion, and intelligence exercise in the management of their own affairs with due regard to the probable income and level of risk from certain types of investments of money, in accordance with the policies established by the board;

(4) Collect application, account, or administrative fees to defray the costs of administering the plan;

(5) Make and enter into contracts, agreements, or arrangements, and retain, employ, and contract for any of the following considered necessary or desirable for carrying out the purposes of this chapter:

(A) Services of private and public financial institutions, depositories, consultants, investment advisers, investment administrators, and third-party plan administrators;

(B) Research, technical, and other services; and

(6) Evaluate the need for, and procure as needed, pooled private insurance of the plan; and

(7) Develop and implement an outreach plan to gain input and disseminate information regarding the plan and individual housing account savings in general.

§ -4 Establishment of the individual housing accounts savings program. (a) There is established the individual housing accounts savings program to be administered by the board. The program shall:

(1) Allow employees in the State to contribute to an account established under the program through payroll deduction;

(2) Require an employer to offer its employees the opportunity to contribute to an account in the program through payroll deductions;

(3) Provide for automatic enrollment of employees and allow employees to opt out of the program;

(4) Offer a default contribution rate set by the board;

(5) Offer default escalation of contribution levels that can be increased or decreased within the limits established by the board;

(6) Provide for contributions to accounts in the program to be deposited directly with the investment administrator for the program;

(7) Whenever possible, use existing employer and public infrastructure to facilitate contributions to the program, recordkeeping, and outreach;

(8) Allow no employer contributions to employee accounts;

(9) Have its records and its program accounts maintained and accounted for separately;

(10) Provide reports on the status of program accounts to program participants at least annually;

(11) Allow account owners to both maintain an account regardless of their place of employment and to roll over funds into other savings accounts;

(12) Pool accounts established under the program for investment;

(13) Be professionally managed;

(14) Provide that the State and employers that participate in the program have no proprietary interest in the contributions to or earnings on amounts contributed to accounts established under the program;

(15) Provide that the investment administrator for the program shall be the trustee of all contributions and earnings on amounts contributed to accounts established under the program;

(16) Not impose on employers any duties that are otherwise prohibited under state or federal law;

(17) Keep administration fees in the program low; and

(18) Allow the use of private sector partnerships to administer and invest the contributions to the program under the supervision and guidance of the board.

(b) The program, board, each board member, and State shall not guarantee any rate of return or any interest rate on any contribution; provided that the program, board, each board member, and State shall not be liable for any loss incurred by any person as a result of participating in the program.

§ -5 Rules. The board shall adopt rules, pursuant to chapter 91, necessary for the purposes of this chapter.

§ -6 Confidentiality. Individual housing account information for accounts under this program, including but not limited to names, addresses, telephone numbers, personal identification information, amounts contributed, and earnings on amounts contributed, shall be confidential and shall be maintained as confidential:

(1) Except to the extent necessary to administer the program in a manner consistent with this chapter, the tax laws of the State, and the Internal Revenue Code of 1986, as amended; or

(2) Unless the person who provides the information or is the subject of the information expressly agrees in writing that the information may be disclosed.

§ -7 Individual housing accounts savings program administrative fund. (a) There is established in the state treasury a special fund to be known as the individual housing accounts savings program administrative fund, into which shall be deposited:

(1) All interest collected under this chapter on and after the establishment of the program;

(2) Appropriations made by the legislature to the fund;

(3) All fees collected as provided in section -3; and

(4) Moneys transferred to the fund from the federal government, other state agencies, or local governments.

(b) The director of finance shall be the treasurer and custodian of the administrative fund.

(c) Moneys in the individual housing accounts savings program administrative fund shall be used to pay the administrative costs and expenses of the board and program and for any other purpose described in this chapter.

§ -8 Annual report. The board shall prepare an annual report detailing the board's activities for the previous fiscal year. The annual report shall be submitted to the governor and legislature no later than twenty days prior to the convening of each regular session."

SECTION 2. Section 235-5.5, Hawaii Revised Statutes, is amended to read as follows:

"§235-5.5 Individual housing accounts. (a) There shall be allowed as a deduction from gross income the amount, not to exceed $5,000, paid in cash during the taxable year by an individual taxpayer to an individual housing account established for the individual's benefit to provide funding for the purchase of the individual's first principal residence[.], or to provide assistance during economic hardships, for capital improvements for homeownership, cemetery and mortuary services, or senior housing. A deduction not to exceed $10,000 shall be allowed for a married couple filing a joint return. No deduction shall be allowed on any amounts distributed less than three hundred sixty-five days from the date on which a contribution is made to the account. Any deduction claimed for a previous taxable year for amounts distributed less than three hundred sixty-five days from the date on which a contribution was made shall be disallowed, and the amount deducted shall be included in the previous taxable year's gross income and the tax reassessed. In addition, the taxpayer shall pay a ten per cent penalty on any amounts distributed less than three hundred sixty-five days from the date on which the amounts were made as a contribution. The interest paid or accrued within the taxable year on the account shall not be included in the individual's gross income. For purposes of this section, the term "first principal residence" means a residential property purchased with the payment or distribution from the individual housing account which shall be owned and occupied as the only home by an individual who did not have any interest in, individually, or whose spouse did not have any interest in, if the individual is married, a residential property within the last five years of opening the individual housing account.

In the case of a married couple filing separate returns, the sum of the deductions allowable to each of them for the taxable year shall not exceed $5,000, or $10,000 for a joint return, for amounts paid in cash, excluding interest paid or accrued thereon.

The amounts paid in cash allowable as a deduction under this section to an individual for all taxable years shall not exceed $25,000, excluding interest paid or accrued. In the case of married individuals having separate individual housing accounts, the sum of the separate accounts and the deduction under this section shall not exceed $25,000, excluding interest paid or accrued thereon.

(b) There shall be allowed as a deduction from gross income the amount, not to exceed $ , paid in cash during the taxable year by an individual taxpayer to an individual housing account established for the individual's benefit to provide funding for the first month's rent or a rental deposit on a dwelling place that is to be used by the individual or the individual's immediate family as the principal residence, or to provide funding for downpayment assistance or closing costs on a principal residence. No deduction shall be allowed on any amounts distributed within twenty-four months from the date on which the first contribution is made to the account. The interest paid or accrued within the taxable year on the account shall not be included in the individual's gross income.

If the individual for whose benefit the individual housing account was established uses the account as provided by this subsection with the distribution from the individual housing account, the individual shall report of the total distribution from the individual housing account used to obtain the rental housing or provide downpayment assistance or closing costs as gross income in the taxable year in which the distribution is completed and in each taxable year thereafter until all of the distribution has been included in the individual's gross income.

[~~(b)~~] (c) For purposes of this section, the term "individual housing account" means a trust created or organized in Hawaii for the exclusive benefit of an individual, or, in the case of a married individual, for the exclusive benefit of the individual and spouse jointly, but only if the written governing instrument creating the trust meets the following requirements:

(1) Contributions shall not be accepted for the taxable year in excess of $5,000 (or $10,000 in the case of a joint return) or in excess of $25,000 for all taxable years, exclusive of interest paid or accrued;

(2) The trustee is a bank, a savings and loan association, a credit union, [or] a depository financial services loan company, or a community development financial institution, chartered, certified, licensed, or supervised under federal or state law, whose accounts are insured by the Federal Deposit Insurance Corporation, the National Credit Union Administration, or any agency of this State or any federal agency established for the purpose of insuring accounts in these financial institutions. The financial institution must actively make residential real estate mortgage loans in Hawaii;

(3) The assets of the trust shall be invested only in fully insured savings or time deposits. Funds held in the trust may be commingled for purposes of investment, but individual records shall be maintained by the trustee for each individual housing account holder that show all transactions in detail;

(4) The entire interest of an individual or married couple for whose benefit the trust is maintained shall be distributed to the individual or couple [~~not~~] no later than one hundred twenty months after the date on which the first contribution is made to the trust;

(5) Except as provided in subsection [~~(g),~~] (h), the trustee shall not distribute the funds in the account unless the trustee:

(A) Verifies that the money is to be used for the purchase of a first principal residence located in Hawaii, to provide assistance during economic hardships, for capital improvement for homeownership, cemetery and mortuary services, or senior housing, or for the uses authorized under subsection (b), and provides that the instrument of payment is payable to the [~~mortgagor,~~]:

(i) Mortgagor, construction contractor, or other vendor of the property purchased; or

(ii) Landlord or landlord's assignee or owner or owner's assignee; or

(B) Withholds an amount equal to ten per cent of the amount withdrawn from the account and remits this amount to the director within ten days after the date of the withdrawal. The amount withheld shall be applied to the liability of the taxpayer under subsections [~~(c)~~] (d) and [~~(e);~~] (f); and

(6) If any amounts are distributed before the expiration of three hundred sixty-five days from the date on which a contribution is made to the account, the trustee shall so notify in writing the taxpayer and the director. If the trustee makes the verification required in paragraph (5)(A), then the department shall disallow the deduction under subsection (a) and subsections [~~(c), (e), and (f)~~] (d), (f), and (g) shall not apply to that amount. If the trustee withholds an amount under paragraph (5)(B), then the department shall disallow the deduction under subsection (a) and subsection [~~(e)~~] (f) shall apply, but subsection [~~(c)~~] (d) shall not apply.

[~~(c)~~] (d) Any contributions paid or distributed out of an individual housing account shall be included in gross income by the individual for whose benefit the account was established for the taxable year in which the payment or distribution is received, unless the amount is used exclusively in connection with the purchase of the first principal residence in Hawaii, to provide assistance during economic hardships, for capital improvement for homeownership, cemetery and mortuary services, or senior housing, or for the uses authorized under subsection (b) for the individual for whose benefit the account was established.

[~~(d)~~] (e) The transfer of an individual's interest in an individual housing account to a spouse under a dissolution of marriage decree or under a written instrument incident to a dissolution of marriage shall not be considered a taxable transfer made by the individual, and the interest, at the time of the transfer, shall be treated as part of an individual housing account of the transferee, and not of the transferor. After the transfer, the account shall be treated, for purposes of this section, as maintained for the benefit of the transferee.

[~~(e)~~] (f) If a distribution from an individual housing account to an individual for whose benefit the account was established is made and not used in connection with the purchase of the first principal residence in Hawaii, to provide assistance during economic hardships, for capital improvement for homeownership, cemetery and mortuary services, or senior housing, or for the uses authorized under subsection (b) for the individual, the tax liability of the individual under this chapter for the taxable year in which the distribution is received shall be increased by an amount equal to ten per cent of the amount of the distribution which is includable in the individual's gross income for the taxable year.

If, during any taxable year, the individual uses the account or any portion thereof as security for a loan, the portion so used shall be treated as if it had been distributed to that individual.

[~~(f)~~] (g) If the individual for whose benefit the individual housing account was established purchases a residential property in Hawaii with the distribution from the individual housing account:

(1) Before January 1, 1990, and if the individual sells in any manner or method or by use of any instrument conveying or transferring the residential property, the gross income of the individual under this chapter for the taxable year in which the residential property is sold, conveyed, or transferred, whichever is applicable, shall include an amount equal to the amount of the distribution from the individual housing account, and in addition, the gross income of the individual shall be increased by an amount equal to ten per cent of the total distribution from the individual housing account; or

(2) After December 31, 1989, the individual shall report one-tenth of the total distribution from the individual housing account used to purchase the residential property as gross income in the taxable year in which the distribution is completed and in each taxable year thereafter until all of the distribution has been included in the individual's gross income at the end of the tenth taxable year after the purchase of the residential property. If the individual sells in any manner or method or by use of any instrument conveying or transferring the residential property, the gross income of the individual under this chapter for the taxable year in which the residential property is sold, conveyed, or transferred, whichever is applicable, shall include an amount equal to the amount of the distribution from the individual housing account not previously reported as gross income, and in addition, the tax liability of the individual shall be increased by an amount equal to ten per cent of the total distribution from the individual housing account. If the individual sells the residential property in any manner as provided in this paragraph after all of the distribution has been included in the individual's gross income at the end of the tenth taxable year after the purchase of the residential property, the tax liability of the individual shall not be increased by an amount equal to ten per cent of the total distribution from the individual housing account.

An individual who purchased a residential property in Hawaii with the distribution from an individual housing account before January 1, 1990, who is subject to paragraph (1) may elect to report as provided in paragraph (2). The election shall be made before January 1, 1991. If the individual makes the election, the individual shall report one-tenth of the total distribution from the individual housing account as gross income in the taxable year in which the election occurs and in each taxable year thereafter until all of the distribution has been included in gross income as provided by paragraph (2). If the individual making the election sells the residential property in any manner as provided in paragraph (2), then the individual shall include as income the amount of the distribution not previously reported as income and increase the individual's tax liability as provided in the second sentence of paragraph (2), except when the third sentence of paragraph (2) applies.

In the alternative, any individual subject to paragraph (2) who established the individual housing account before January 1, 1990, may elect within one year after the date of purchase, to be subject to paragraph (1).

[~~(g)~~] (h) No tax liability shall be imposed under this section if:

(1) The payment or distribution is attributable to the individual dying or becoming totally disabled; or

(2) Residential property subject to subsection [~~(f)~~] (g) is transferred by will or by operation of law or sold due to the death or total disability of an individual or individual's spouse,

subject to the following:

An individual shall not be considered to be totally disabled unless proof is furnished of the total disability in the form and manner as the director may require.

Upon the death of an individual for whose benefit an individual housing account has been established, the funds in the account shall be payable to the estate of the individual; provided that if the account was held jointly by the decedent and a spouse of the decedent, the account shall terminate and be paid to the surviving spouse; or, if the surviving spouse so elects, the spouse may continue the account as an individual housing account. Upon the total disability of an individual for whose benefit an individual housing account has been established, the individual or the individual's authorized representative may elect to continue the account or terminate the account and be paid the assets; provided that if the account was held jointly by a totally disabled person and a spouse of that person, then the spouse or an authorized representative may elect to continue the account or terminate the account and be paid the assets.

[~~(h)~~] (i) If the individual for whose benefit the individual housing account was established subsequently marries a person who has or has had any interest in residential property, the individual's housing account shall be terminated, the funds therein shall be distributed to the individual, and the amount of the funds shall be includable in the individual's gross income for the taxable year in which [~~such~~] the marriage took place; provided that the tax liability defined under subsection [~~(f)~~] (g) shall not be imposed.

(j) A taxpayer may establish an individual housing account in the name of a dependent of the taxpayer upon providing the dependent's birth certificate and social security number to the director of taxation. The individual housing account established pursuant to this section may be opened upon the birth of the dependent. Any contributions to the individual housing account, subject to the limitations in subsection (b), shall be deductible by the taxpayer until the child reaches age .

The director of taxation shall prepare any forms that may be necessary to establish an individual housing account in the name of a dependent of the taxpayer and may require proof of claim of the dependent.

[~~(i)~~] (k) The trustee of an individual housing account shall make reports regarding the account to the director and to the individual for whom the account is maintained with respect to contributions, distributions, and other matters as the director may require under rules. The reports shall be filed at a time and in a manner as [~~may be~~] required by rules adopted under chapter 91. A person who fails to file a required report shall be subject to a penalty of $10 to be paid to the director for each instance of failure to file.

(l) The director of taxation may adopt rules pursuant to chapter 91 necessary to effectuate the purposes of this section, including defining the terms "economic hardship" and "capital improvement for home ownership"."

SECTION 3. There is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2019-2020 and the same sum or so much thereof as may be necessary for fiscal year 2020-2021 to be deposited into the individual housing accounts savings program administrative fund.

SECTION 4. There is appropriated out of the individual housing accounts savings program administrative fund the sum of $ or so much thereof as may be necessary for fiscal year 2019-2020 and the same sum or so much thereof as may be necessary for fiscal year 2020-2021 for administrative and operating expenses of the individual housing accounts savings board.

The sums appropriated shall be expended by the department of budget and finance for the purposes of this Act.

SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 6. This Act shall take effect on January 1, 2050.

THE SENATE	S.B. NO.	1310
THIRTIETH LEGISLATURE, 2019		S.D. 2
STATE OF HAWAII		H.D. 1