A 10725: Establishes the child care savings program; provides for the functions and powers of the comptroller related to such program and for program requirements and limitations.

  
  STATE OF NEW YORK ________________________________________________________________________ 10725  IN ASSEMBLY March 27, 2026 ___________ Introduced by M. of A. BOLOGNA -- read once and referred to the Commit- tee on Children and Families AN ACT to amend the social services law, in relation to establishing the child care savings program The People of the State of New York, represented in Senate and Assem- bly, do enact as follows: 1 Section 1. Article 6 of the social services law is amended by adding a 2 new title 1-B to read as follows: 3 TITLE 1-B 4 CHILD CARE SAVINGS PROGRAM 5 Section 394-h. Definitions. 6 394-i. Program established. 7 394-j. Purposes. 8 394-k. Functions of the comptroller. 9 394-l. Powers of the comptroller. 10 394-m. Program requirements; child care savings account. 11 394-n. Program limitations; child care savings. 12 394-o. Payment of matching funds. 13 § 394-h. Definitions. As used in this title, the following terms shall 14 have the following meanings: 15 1. "Account" or "child care savings account" shall mean an individual 16 savings account established in accordance with the provisions of this 17 title. 18 2. "Account owner" shall mean an individual who enters into a child 19 care savings agreement pursuant to the provisions of this title. 20 3. "Designated beneficiary" shall mean, with respect to an account, 21 the designated individual whose child care expenses are expected to be 22 paid from the account. 23 4. "Expected designated beneficiary" shall mean, with respect to the 24 account, the designated individual whose child care expenses are 25 expected to be paid from the account and who is expected to be born 26 within ten months. 27 5. "Financial organization" shall mean an organization authorized to 28 do business in the state, and (a) which is an authorized fiduciary to EXPLANATION--Matter in italics (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD14805-01-6 
 A. 10725 2 1 act as a trustee pursuant to the provisions of an act of congress enti- 2 tled "Employee Retirement Income Security Act of 1974", as such 3 provisions may be amended from time to time, or an insurance company; 4 and (b)(i) is licensed or chartered by the department of financial 5 services, (ii) is chartered by an agency of the federal government, 6 (iii) is subject to the jurisdiction and regulation of the securities 7 and exchange commission of the federal government, (iv) is any other 8 entity otherwise authorized to act in this state as a trustee pursuant 9 to the provisions of an act of congress entitled "Employee Retirement 10 Income Security Act of 1974", as such provisions may be amended from 11 time to time, or (v) is any banking organization as defined in subdivi- 12 sion eleven of section two of the banking law, national banking associ- 13 ation, state chartered credit union, federal mutual savings bank, feder- 14 al savings and loan association or federal credit union. 15 6. "Eligible child care facilities" shall mean any licensed full-day 16 child care and early education program and centers; licensed part-time 17 child care and early education program and centers; family child care 18 homes; and afterschool programs for children aged five through twelve. 19 7. "Program" shall mean the child care savings program established 20 pursuant to this title. 21 8. "Qualified child care expenses" shall mean monies applied for the 22 services of a licensed child day care center, group family day care 23 home, family day care home, and school age child care, as such terms are 24 defined in section three hundred ninety of this article. 25 9. "Qualified withdrawal" shall mean a withdrawal from an account to 26 pay the qualified child care expense of the designated beneficiary of 27 the account. 28 10. "Non-qualified withdrawal" shall mean a withdrawal from an 29 account, including but not limited to expenses for primary, secondary, 30 or post-secondary education, but shall not include: 31 (a) a qualified withdrawal; 32 (b) a withdrawal made as a result of death; 33 (c) an unforeseeable emergency; or 34 (d) need based upon qualifying for military service in the armed forc- 35 es of the United States, as determined by rules and regulations promul- 36 gated by the comptroller. 37 11. "Management contract" shall mean the contract executed by the 38 comptroller and a financial organization selected to act as a depository 39 and manager of the program. 40 12. "Child care savings agreement" shall mean an agreement between the 41 comptroller or a financial organization and the account owner. 42 13. "Program manager" shall mean a financial organization selected by 43 the comptroller to act as a depository and manager of the program. 44 14. "Matchable contribution" shall mean a contribution to an account 45 that is not less than five dollars and not more than fifty dollars made 46 within the same taxable year. 47 § 394-i. Program established. There is hereby established the child 48 care savings program. 49 § 394-j. Purposes. The program shall authorize the establishment of 50 child care savings accounts and provide guidelines for maintaining such 51 accounts so that residents of this state: 52 1. benefit from the incentives provided for qualified child care 53 savings accounts; 54 2. stay in the workforce by providing a means to save and pay for 55 child care; and 
 A. 10725 3 1 3. ascertain better opportunities for children to receive quality 2 child care. 3 § 394-k. Functions of the comptroller. 1. The comptroller shall imple- 4 ment the program under the terms and conditions established by this 5 title and a memorandum of understanding with the commissioner of the 6 office of children and family services relating to any terms or condi- 7 tions not otherwise expressly provided for in this title. 8 2. In furtherance of such implementation, the comptroller shall: 9 (a) develop and implement the program in a manner consistent with the 10 provisions of this title through rules and regulations; 11 (b) engage the services of consultants on a contract basis for render- 12 ing professional and technical assistance and advice; 13 (c) make changes to the program required for the participants in the 14 program to obtain the state income tax benefits or matchable contrib- 15 utions provided by this title; 16 (d) charge, impose, and collect administrative fees and service charg- 17 es in connection with any agreement, contract, or transaction relating 18 to the program; 19 (e) develop marketing plans and promotion materials; 20 (f) establish the methods by which the funds held in such accounts are 21 dispersed; 22 (g) establish the method by which funds shall be allocated to pay for 23 administrative costs; and 24 (h) do all things necessary and proper to carry out the purposes of 25 this title. 26 § 394-l. Powers of the comptroller. 1. The comptroller may implement 27 the program through the use of financial organizations as account depos- 28 itories and managers. Under the program, an account owner may establish 29 accounts directly with an account depository. 30 2. The comptroller may solicit proposals from financial organizations 31 to act as depositories and managers of the program. Financial organiza- 32 tions submitting proposals shall describe the investment instrument to 33 be held in the accounts. The comptroller shall select as program deposi- 34 tories and managers the financial organization, from among the bidding 35 financial organizations, that demonstrates the most advantageous combi- 36 nation, both to potential program participants and this state, based on 37 the following factors: 38 (a) financial stability and integrity of the financial organization; 39 (b) the safety of the investment instrument being offered; 40 (c) the ability of the organization to satisfy recordkeeping and 41 reporting requirements; 42 (d) the financial organization's plan for promoting the program and 43 the investment it is willing to make to promote the program; 44 (e) the fees, if any, proposed to be charged to persons for opening 45 accounts; 46 (f) the minimum initial deposit and minimum contributions that the 47 financial organization will require; 48 (g) the ability of banking organizations to accept electronic with- 49 drawals, including payroll deduction plans; and 50 (h) any other potential benefits to the state or its residents 51 included in the proposal, including fees payable to the state to cover 52 the operational expenses of the program. 53 3. The comptroller may enter into a contract with a financial organ- 54 ization. Such financial organization management may provide one or more 55 types of investment instruments. 
 A. 10725 4 1 4. The comptroller may select more than one financial organization for 2 the program. 3 5. A management contract shall include, at a minimum, terms requiring 4 the financial organization to: 5 (a) take any action required to keep the program in compliance with 6 requirements established by this title and any actions not contrary to 7 its contract to manage the program to qualify as a "child care savings 8 account" under this title; 9 (b) keep adequate records of each account, keep each account segre- 10 gated from each other account, and provide the comptroller with the 11 information necessary to prepare the statements required by this title; 12 (c) compile and maintain information contained in statements required 13 to be prepared under this title and provide such compilations to the 14 comptroller; 15 (d) if there is more than one program manager, provide the comptroller 16 with such information as is necessary to determine compliance with this 17 title; 18 (e) provide the comptroller or their designee access to the books and 19 records of the program manager to the extent needed to determine compli- 20 ance with the contract; 21 (f) hold all accounts for the benefit of the account owner; 22 (g) be audited at least annually by a firm of certified public 23 accountants selected by the program manager, and that the results of 24 such audit be provided to the comptroller; 25 (h) provide the comptroller with copies of all regulatory filings and 26 reports made by it during the term of the management contract or while 27 it is holding any accounts, other than confidential filings or reports 28 that will not become part of the program. The program manager shall 29 make available for review by the comptroller the results of any periodic 30 examination of such a manager by any state or federal banking, insur- 31 ance, or securities commission, except to the extent that such report or 32 reports may not be disclosed under applicable law or the rules of such 33 commission; and 34 (i) ensure that any description of the program, whether in writing or 35 through the use of any media, is consistent with the marketing plan as 36 developed pursuant to this title. 37 6. The comptroller may provide that an audit shall be conducted of the 38 operations and financial position of the program depository and manager 39 at any time if the comptroller has any reason to be concerned about the 40 financial position, the recordkeeping practices, or the status of 41 accounts of such program depository and manager. 42 7. During the term of any contract with a program manager, the comp- 43 troller shall examine such a manager and its handling of accounts. Such 44 an examination shall be conducted at least biennially if such a manager 45 is not otherwise subject to periodic examination by the superintendent 46 of financial services, the federal deposit insurance corporation, or 47 other similar entity. 48 8. (a) If the selection of a financial organization as a program 49 manager or depository is not renewed, after the end of its term: 50 (i) accounts previously established and held in investment instruments 51 at such financial organization may be terminated; 52 (ii) additional contributions may be made to such accounts; 53 (iii) no new accounts may be placed with such financial organization; 54 and 
 A. 10725 5 1 (iv) existing accounts held by such a depository shall remain subject 2 to all oversight and reporting requirements established by the comp- 3 troller. 4 (b) If the comptroller terminates a financial organization as a 5 program manager or depository, the comptroller shall take custody of 6 accounts held by such financial organization and shall seek to promptly 7 transfer such accounts to another financial organization that is 8 selected as a program manager or depository and into investment instru- 9 ments most similar to the original instruments as possible. 10 9. The comptroller may enter into such contracts as it deems necessary 11 and proper for the implementation of the program. 12 § 394-m. Program requirements; child care savings account. 1. Child 13 care savings accounts established pursuant to the provisions of this 14 title shall be governed by the provisions of this section. 15 2. A child care savings account may be opened by any person who 16 desires to save money for the payment of the qualified child care 17 expenses of the designated beneficiary. An account owner may designate 18 another person as the successor owner of the account in the event of the 19 death of the original account owner. A person who opens an account, or 20 any successor owner, shall be considered the account owner. 21 (a) An application for such an account shall be in the form prescribed 22 by the program and contain the following: 23 (i) the name, address, and social security number or employer iden- 24 tification number of the account owner; 25 (ii) the designation of a designated beneficiary or an expected desig- 26 nated beneficiary; 27 (iii) the name, address, and social security number of the designated 28 beneficiary, provided, however, if an applicant designates an expected 29 designated beneficiary, such information shall be provided within one 30 month of the expected designated beneficiary's birth; and 31 (iv) other information as the program may require. 32 (b) The comptroller and the corporation may establish a nominal fee 33 for such application. 34 3. Any person, including the account owner, may make contributions to 35 the account after the account is opened. 36 4. Contributions to accounts may be made only in cash. 37 5. An account owner may withdraw all or part of the balance from an 38 account as authorized under rules governing the program. Such rules 39 shall include provisions that will generally enable the determination as 40 to whether a withdrawal is a qualified or non-qualified withdrawal. 41 6. (a) An account owner may change the designated beneficiary of an 42 account in accordance with procedures established by the memorandum of 43 understanding pursuant to the provisions of this title. 44 (b) An account owner may transfer all or a portion of an account to 45 another child care savings account. 46 (c) Changes in designated beneficiaries and transfers under this 47 subdivision shall not be permitted to the extent that they would cause 48 all accounts for the same beneficiary to exceed the permitted aggregate 49 maximum account balance. 50 7. If an applicant designates an expected designated beneficiary, such 51 designated beneficiary shall automatically be designated as the desig- 52 nated beneficiary upon the applicant providing the beneficiary's name, 53 address, and social security number within one month of their birth. 54 8. The program shall maintain separate accounting for each designated 55 beneficiary. 
 A. 10725 6 1 9. No account owner or designated beneficiary of any account shall be 2 permitted to direct the investment of any contributions to an account or 3 the earnings thereon more than two times in any calendar year. 4 10. Neither an account owner nor a designated beneficiary may use an 5 interest in an account as security for a loan. Any pledge of an interest 6 in an account shall be of no force and effect. 7 11. The comptroller shall promulgate rules or regulations to prevent 8 contributions on behalf of a designated beneficiary in excess of an 9 amount that would cause the aggregate account balance for all accounts 10 for a designated beneficiary to exceed a maximum account balance, as 11 established from time to time by the comptroller. 12 12. Personal contributions to a child care savings account shall be 13 limited to seventy-five thousand dollars per account per year. This 14 amount shall not take into consideration any gain or loss to the princi- 15 pal investment in the account. 16 13. If an individual makes a "non-qualified withdrawal" of monies from 17 a child care savings account, such individual shall have the entire 18 account taxed, including any interest, as though it were income at the 19 account owner's federal tax rate in the tax years the money was with- 20 drawn, and incur an additional ten percent state penalty on the amount 21 of earnings. The penalty shall be in addition to any taxes due pursuant 22 to a non-qualified withdrawal from a child care savings account. 23 14. (a) Penalties may be waived by the commissioner of the office of 24 children and family services if the individual can show proof that the 25 reason the individual did not use the qualified child care expenses was 26 due to either: 27 (i) an employment relocation outside the state and such relocation 28 required the individual to become a resident of another state; 29 (ii) an unforeseeable emergency; 30 (iii) an absence due to qualifying military service; or 31 (iv) death. 32 (b) For purposes of this subdivision, an "unforeseeable emergency" 33 shall mean a severe financial hardship resulting from illness, accident, 34 or property loss to the account owner, or their dependents, resulting in 35 circumstances beyond their control. The circumstances that constitute an 36 unforeseeable financial emergency will depend on the facts of each case; 37 however, withdrawal of account funds may not be made, without penalty, 38 to the extent that such hardship is or may be relieved by either: 39 (i) reimbursement or compensation by insurance or otherwise; or 40 (ii) liquidation of the individual's assets to the extent the liqui- 41 dation of such assets would not itself cause severe financial hardship. 42 15. The commissioner of the office of children and family services and 43 the comptroller are directed to promulgate all rules and regulations 44 necessary to implement the provisions of this section and are hereby 45 directed to establish, supervise and regulate child care savings 46 accounts authorized to be created by this section. 47 16. (a) If there is any distribution from a child care savings account 48 to any individual or for the benefit of any individual during a calendar 49 year, such distribution shall be reported to the department and the 50 account owner, the designated beneficiary, or the distributee to the 51 extent required by law or regulation. 52 (b) Statements shall be provided to each account owner at least once 53 each year within sixty days after the end of the twelve-month period to 54 which they relate. The statement shall identify the contributions made 55 during a preceding twelve-month period, the total contributions made to 56 the account through the end of the period, the value of the account at 
 A. 10725 7 1 the end of such a period, distributions made during such a period, and 2 any other information that the comptroller shall require to be reported 3 to the account owner. 4 (c) Statements and information relating to accounts shall be prepared 5 and filed pursuant to the provisions of this chapter. 6 17. An annual fee may be imposed upon the account owner for the main- 7 tenance of the account. 8 18. The program shall disclose the following information in writing to 9 each account owner of a child care savings account: 10 (a) the terms and conditions for establishing a child care savings 11 account; 12 (b) any restrictions on the substitution of beneficiaries; 13 (c) the person or entity entitled to terminate the child care savings 14 agreement; 15 (d) the period of time during which a beneficiary may receive benefits 16 under the child care savings agreement; 17 (e) the terms and conditions under which money may be wholly or 18 partially withdrawn from the program, including, but not limited to, any 19 reasonable charges and fees that may be imposed for withdrawal; 20 (f) the probable tax consequences associated with contributions to and 21 distributions from accounts; and 22 (g) all other rights and obligations pursuant to child care savings 23 agreements, and any other terms, conditions, and provisions deemed 24 necessary and appropriate by the terms of the memorandum of understand- 25 ing entered into. 26 19. Child care savings agreements shall be subject to section four- 27 teen-c of the banking law and the "truth-in-savings" regulations promul- 28 gated thereunder. 29 20. Nothing in this title or in any child care savings agreement 30 entered into pursuant to this title shall be construed as a guarantee by 31 the state that the account owner or designated beneficiary will be 32 admitted to a licensed child care, early education program, family child 33 care home, or afterschool program. 34 21. Money withdrawn from child care savings accounts and any interest 35 that has accrued shall not be considered as taxable income to the 36 account owner for state personal income taxation purposes, so long as 37 the money is applied for the qualified child care expenses by the 38 account owner or designated beneficiary of the account. 39 § 394-n. Program limitations; child care savings. 1. Nothing in this 40 title shall be construed to: 41 (a) give any designated beneficiary any rights or legal interest with 42 respect to an account unless such designated beneficiary is the account 43 owner; 44 (b) create state residency for an individual merely because such indi- 45 vidual is a designated beneficiary; or 46 (c) guarantee that amounts saved pursuant to the program will be 47 sufficient to cover the qualified child care expenses of a designated 48 beneficiary. 49 2. (a) Nothing in this title shall create or be construed to create 50 any obligation of the comptroller, the state, or any agency or instru- 51 mentality of the state to guarantee for the benefit of the account owner 52 or designated beneficiary with respect to: 53 (i) the rate of interest or other return on any account; or 54 (ii) the payment of interest or other return on any account. 55 (b) The comptroller shall, by rule or regulation, provide that every 56 contract, application, deposit slip, or other similar document that may 
 A. 10725 8 1 be used in connection with a contribution to an account clearly indicate 2 that the account is not insured by the state and neither the principal 3 deposited nor the investment return is guaranteed by the state. 4 § 394-o. Payment of matching funds. 1. No matching funds shall be paid 5 to or deposited into a child care savings account unless the comptroller 6 determines that the account owner has met the eligibility requirements 7 established in subdivision two of this section. Payment shall not exceed 8 the amounts specified in subdivision three of this section and may only 9 be made in accordance with the provisions of this title. No matching 10 funds shall be used for anything other than a qualified withdrawal. 11 2. To be eligible for matching funds under this title, an account 12 owner shall: 13 (a) maintain a child care savings account with a balance that is less 14 than fifty thousand one dollars; 15 (b) earn an income that falls between eighty-six and one hundred twen- 16 ty-five percent of the state median income; 17 (c) not have received matching funds up to an aggregate total of 18 fifteen thousand dollars; and 19 (d) meet any other requirements as established by the comptroller in 20 consultation with the commissioner of the office of children and family 21 services. 22 3. If the eligibility threshold is met, the eligible account owner 23 shall receive payment of fifteen cents for each dollar of matchable 24 contributions, up to an aggregate amount not to exceed fifteen thousand 25 dollars, with payment made directly into the child care savings account. 26 4. If the comptroller determines that any portion of the payment made 27 to an eligible account owner was in excess of the aggregate amount they 28 were eligible to receive, the comptroller shall notify the account owner 29 and the financial organization, and the financial organization shall 30 rescind the identified amount from the account and transfer the funds to 31 the comptroller. 32 § 2. Subsection (b) of section 612 of the tax law is amended by adding 33 a new paragraph 44 to read as follows: 34 (44) (A) Excess distributions received during the taxable year by a 35 distributee of a child care savings account established under the child 36 care savings program provided for under title one-B of article six of 37 the social services law, to the extent such excess distributions are 38 deemed attributable to the deductible contributions under paragraph 39 forty-eight of subsection (c) of this section. 40 (B) (i) The term "excess distributions" means distributions which are 41 not: 42 (I) qualified withdrawals within the meaning of subdivision nine of 43 section three hundred ninety-four-h of the social services law; 44 (II) withdrawals made because of the death or disability of the desig- 45 nated beneficiary within the meaning of subdivision three of section 46 three hundred ninety-four-h of the social services law; 47 (III) transfers described in paragraph (b) of subdivision six of 48 section three hundred ninety-four-m of the social services law; or 49 (IV) qualified withdrawals that contain matching funds provided by the 50 comptroller. 51 (ii) Excess distributions shall be deemed attributable to deductible 52 contributions to the extent the amount of any such excess distribution, 53 when added to all previous excess distributions from the account, 54 exceeds the aggregate of all nondeductible contributions to the account. 55 § 3. Subsection (c) of section 612 of the tax law is amended by adding 56 a new paragraph 48 to read as follows: 
 A. 10725 9 1 (48) Contributions made during the taxable year by an account owner to 2 one or more child care savings accounts established under the child care 3 savings program provided for under title one-B of article six of the 4 social services law, to the extent not deductible or eligible for credit 5 for federal income tax purposes; provided, however, the exclusion 6 provided for in this paragraph shall not exceed five thousand dollars 7 for an individual or head of household, and for married couples who file 8 joint tax returns, shall not exceed ten thousand dollars; provided, 9 further that such exclusion shall be available only to the account owner 10 and not to any other person. 11 § 4. This act shall take effect December 31, 2028, and shall apply to 12 taxable years commencing on or after the first of January next succeed- 13 ing the date on which it shall have become a law. Effective immediately, 14 the addition, amendment and/or repeal of any rule or regulation neces- 15 sary for the implementation of this act on its effective date are 16 authorized to be made and completed on or before such effective date.