September 21–23, 2005

ITEM 128-112-R0905  Revision to the Montana Family Education Savings Program

THAT: Board of Regents Policy 950.2 Montana Family Education Savings Program is amended to include the revisions to reflect and implement recent legislation ( SB 432, Ch. 549, L. 2005) changing Montana law relating to the Montana Family Education Savings Program to comply with certain federal securities law requirements.

EXPLANATION: Under old law, MFESP accounts were offered by College Savings Bank, as program manager, or Pacific Funds, as investment manager. The accounts were technically participating trusts or trust accounts under a trust established by College Savings Trust and the Board of Regents. College Savings Trust, as trustee, played a nondiscretionary role.

The new law establishes the "family education savings trust" (the "trust") as an instrumentality of the state. The Board of Regents is the trustee of the trust. The trust consists of participating trusts with each participating trust corresponding to a "program account." In accordance with instructions from account owners, the trustee invests the funds deposited in each participating trust in permitted investment products. Thus, when the new rules become effective, existing accounts will be bifurcated. The account owner will become the owner of a participating trust or "program account." The funds in each program account will be invested in a corresponding investment account with College Savings Bank or the Pacific Funds. The trustee will be treated as the "issuer" of the program accounts and will hold title to the investment accounts.

The new law requires that payments to the trust for participation in the program be made by account owners pursuant to "participating trust agreements." The Board of Regents, as trustee and administrator of the program, and the account owner are the parties to a participating trust agreement, which creates a trust interest in the trust and provides for participation in the program.