Testimony Provided to the Internal Revenue Service on Guidance under Section 529A: Proposed ABLE Programs [REG-102837-15]
Christopher J. Rodriguez
Senior Public Policy Advisor
National Disability Institute
October 14, 2015
Good afternoon, my name is Chris Rodriguez, and I am the Senior Public Policy Advisor at National Disability Institute (NDI). Thank you for the opportunity to speak today concerning the Stephen Beck Jr. Achieving a Better Life Experience (ABLE) Act. As the country’s only organization solely dedicated to advancing the economic self-sufficiency and financial well-being of all Americans with disabilities, this long sought after piece of legislation, signed into law December 19th of 2014, has been of particular interest to NDI and closely associated with the mission we so diligently pursue.
Disability in America crosses the dividing lines of gender, race, ethnicity, age, and geography. The most common characteristic across these dividing lines is living in or near the perimeters of poverty, making the ability to make ends meet something altogether unattainable. The poverty rate for individuals with disabilities is 28.4 percent, nearly double the national average. According to 2013 Census data, median income for an individual with a disability was $20,515 - more than one third less than that same individual’s non-disabled peer. This should come as no surprise when considering that only 19.8 percent of people with a disability were considered to be active participants in the American labor force, as compared to 69 percent of people without disabilities (2015 BLS data). Based on FDIC 2013 survey data, households headed by an adult with a disability, are more likely to be longer term unbanked and less likely to have checking and savings accounts when compared to their non-disabled peers. Twenty-five years after the passage of the Americans with Disabilities Act (ADA), pillared by the promise of equal opportunity to “advance economic self-sufficiency,” the rate of unemployment and the prevalence of poverty among this population has remained unchanged.
Millions of Americans with disabilities rely on the overwhelmingly modest, yet significant, cash benefit provided though Supplemental Security Income (SSI), along with the often vital and essential supports provided through Medicaid. These public benefits, providing a lifeline to individuals with disabilities and their families to access community based supports, as opposed to archaic institutional type settings, are associated with a long-term sentence of poverty. This perpetual state of chronic poverty is anchored by the rules for continued eligibility that disallow the beneficiary to acquire resources of $2,000 (or more) at any point in time, virtually holding the individual with disabilities hostage from pursuing the American Dream, an idea and philosophy apparently reserved for those of able body and mind.
Recognizing this issue, and determined to address it, individuals with disabilities, their family members and friends, local, state, and national disability-related organizations, and disability champions in Congress set their attention on a solution. Nearly a decade later, through no lack of effort or patience, the ABLE Act was signed into law, and with it the hope and vision to transform opportunities for millions of Americans with disabilities to rethink their goals, reduce dependence on public benefits, and chart a personal pathway out of poverty. If implemented in a thoughtful and responsible manner, ABLE accounts will allow millions of individuals with disabilities, their families, and their friends to contribute to ABLE accounts, set savings goals, and put aside funds for emergency short-term needs and long-term objectives. The distribution of income funds contributed to ABLE accounts are tax-free. The funds in the accounts are not taken into consideration when determining eligibility for any federal means or resource tested public benefits. Funds deposited in an ABLE account are truly a down payment on freedom for individuals with disabilities and a first step toward improved education and employment status, financial inclusion, and economic advancement.
To date, 32 states have passed laws to create the infrastructure to establish ABLE account programs and allow investment choices and tax free disbursements, provided those disbursements are made for disability related expenses that will assist the beneficiary in maintaining or increasing their health, independence, and/or quality of life. The potential impact of ABLE accounts is clearly transformative, however the benefits may not be fully recognized absent sound programmatic parameters and guidance. For this reason, NDI was pleased to see the timely release of the Notice of Proposed Rule Making (NPRM). In addition, we have been exceedingly impressed with the relatively open line of communication with the Treasury Department and the Internal Revenue Service (IRS) concerning details of the ABLE NPRM. Undoubtedly your willingness to communicate with, and learn from, the disability community and other relevant stakeholders, has resulted in several exceedingly positive aspects included in the NPRM. While we have documented many of these positive aspects in our written comments, submitted in September, I would still like to mention just a few.
Definition of Qualified Disability Expense
We strongly support the proposed broad definition of qualified disability expenses, including allowing for basic living expenses. Individuals with disabilities often have a wide range of needs related to their disability and we appreciate a definition that reflects this wide array of needs. In addition, relating the expenses to maintaining or improving the beneficiary’s health, independence, or quality of life further pairs the more tangible aspects of the program with the spirit and intent of the law. We also appreciate and strongly support the language stipulating that the qualified disability expense need not be of medical necessity and may have coincidental peripheral benefits to an individual in addition to the qualified beneficiary.
Residency Requirement
We strongly support the language allowing the beneficiary to be able to change his/her residency while still maintaining their ABLE account in its’ state of origin. It is foreseeable that a qualified beneficiary may over the lifetime of the account need to change residency to another state. It is important that the individual has the option to continue to maintain their ABLE account in the state in which it was established.
Reaffirmation of Account Ownership
We wish to express support and to underline the significance of the IRS’ reaffirmation that the beneficiary is the account owner. Putting forth a declaration stipulating ownership of the account by the individual with a disability makes tangible the intent of the law to increase the beneficiary’s independence and gives support to the ADA’s vision of providing equal opportunity to individuals with disabilities to “advance economic self-sufficiency”. Furthermore it brings closer to reality the opportunities to exercise self-determination and individual choice, concepts often overshadowed by a paternalistic approach to individuals with disabilities, one which only results in a diminished capacity for higher expectations.
While we, for the most part, remain enthusiastic concerning the contents of the NPRM, there are areas which we believe still require further explanation or guidance. Again, those are detailed in our previously submitted comments, however I would like to further articulate just a few of those recommendations.
Clarification on Contracting State Language
We would like clarification on whether or not a state without an ABLE program can contract with multiple states (that have an ABLE program) or just a single state. Not unlike the operations of the 529 college savings plans, we believe potential ABLE beneficiaries and their families should have as wide an array of program options as possible. Providing the availability to choose between multiple ABLE programs promotes competition among the programs and thus incentivizes states to ensure lower fees and minimal costs to the beneficiary. These costs will be further reduced if multiple states are allowed to contract together into ABLE program consortiums, an idea which has been proposed by multi-state financial entities in their ABLE program design discussions. A fundamental advantage of creating an ABLE account is that it should not be cost prohibitive to families and qualified beneficiaries with relatively low to modest means. In addition, as a result of the potential longevity of the accounts, combined with the availability of saving for short and long term expenses, a qualified beneficiary should have the choice to examine other ABLE programs outside of their state of residence in order to determine the investment option(s) which would best meet his/her needs. We believe that allowing a state without an ABLE program to contract with multiple states with an ABLE program is a reasonable interpretation of the statute and is supported by the intent of the law.
Uniformity in Paperwork
While we appreciate the flexibility given to the states with respect to the development of their programs, we would urge the Treasury and the IRS to develop suggested forms that would meet the requirements of the various components, many of which we find ambiguous. These suggested forms, many of which are described in our comments, should be mostly uniform across programs, create a streamlined opportunity to potential beneficiaries to enroll, and maintain a very limited amount of administrative burden on the states. We would be willing to offer input and assistance in the creation of these forms, as our comments reflect a description of forms that we believe would meet the previously mentioned criteria. Two examples are as follows:
Qualified Disability Expense Safeguard
With respect to the language related to the responsibility of the ABLE program to establish a safeguard to distinguish between non-qualified and qualified distributions, there seems to be some uncertainty as to what may constitute an acceptable “safeguard.” We would recommend the IRS offer an example of what would be allowable as a “safeguard.” Additionally we would ask that the example articulate a reasonable safeguard that takes into consideration the limited administrative resources and capacities of state ABLE administrators. While we are confident that states will maintain their programs within the parameters of the law and regulations, we aim to keep administrative burden to a minimum, as we could foresee robust administrative responsibilities easily translated into overly cumbersome fees for the qualified beneficiary. We would envision an appropriate safeguard to distinguish between non-qualified and qualified distributions to be something along the lines of a single form annually filed with the state ABLE program stating that all distributions made during such year were qualified distributions and signed under penalty of perjury. Under this proposed safeguard, the beneficiary would be solely responsible for keeping receipts and other evidence of allowable expenditures, and would only need to produce this documentation if expenditures were challenged or an audit of the ABLE account was requested. This aligns with a Health Savings Account model and keeps the recordkeeping burden on the individual instead of on the state administrator. Any requirement wherein a state ABLE program would need to certify distributions as qualified on a purchase-by-purchase basis would be extraordinarily prohibitive to the beneficiary and would presumably account for exhaustive administrative burden.
Disability Certification
While we agree that the qualifying criteria in the disability certification is sound, we have come to the conclusion that requiring the State ABLE program to receive and maintain sensitive materials, particularly materials of a medical nature, could have an extensively burdensome result on the program administrators and create privacy concerns for the beneficiaries. Again, our aim is to keep administrative burden to a minimum in hopes that it will keep the cost of the programs down, and thus make them more accessible to potential qualified beneficiaries.
While the qualified beneficiary should need to meet all the criteria stated in the NPRM, including having the diagnosis of his/her impairment, signed by a qualified physician, we would recommend a form, signed under penalty of perjury, that the qualified beneficiary meets the criteria and if ever audited will produce the diagnosis related to the impairment (along with the physician’s signature) dated prior to the opening of the ABLE account. This form would serve as the disability certification. The qualified beneficiary would be responsible for holding the record of those sensitive materials while the program administrator would record but not verify how the individual is qualified.
2016 $28,000 “Catch-Up” Contribution Limit
While not included in our comments, we wanted to mention a suggestion recently discussed among various stakeholders. In an effort to fund these accounts in as a robust manner as possible, we would recommend that the Treasury and IRS allow for the aggregate annual contribution limit to be raised to $28,000 for the year 2016. It is our opinion that since there was virtually no opportunity for states to pass enabling legislation and develop, in a responsible manner, an ABLE program within the first year, despite the needs of their residence and the passage of the federal law in 2014, there should be a “catch-up” contribution year in 2016. This “catch-up” year would incentivize states to develop their programs, potentially double the amount of funds flowing into the program in the inaugural year (thus assisting in keeping fees to a minimum), and give beneficiaries and their families a stronger vehicle into the start of their new found independence and heightened level of financial security.
In closing, thank you again for the opportunity to address the group and thank you for your hard work in the development of the NPRM. We look forward to the final rules and regulations, and stand ready and willing to offer further assistance and input if needed.
At this time I would be happy to answer any questions concerning the comments submitted by NDI, the ABLE National Resource Center, or this testimony as given.