Assets for Independence Demonstration Program

[Federal Register Volume 64, Number 59 (Monday, March 29, 1999)]
[Notices]
[Pages 14923-14931]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-7616]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Administration for Children and Families
[Clarification of Program Announcement No. OCS-99-04]


Assets for Independence Demonstration Program

AGENCY: Office of Community Services (OCS), ACF, DHHS.

ACTION: Notice of clarification of program announcement No. OCS-99-04 
Assets for Independence Demonstration Program, published in the Federal 
Register of January 27, 1999; and additional guidance for program 
applicants.

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SUMMARY: The Office of Community Services continues to consult and 
deliberate in an inclusive manner in planning for the new Assets for 
Independence Demonstration Program. This process has involved 
discussions with offices within and outside the Department of Health 
and Human Services, the Treasury Department, Congress, and State 
offices and practitioners in the field. To the extent possible we have 
taken these views and deliberations into account in the fashioning of 
the Assets for Independence Demonstration Program Announcement. In 
addition, since its publication we have received questions about the 
Program Announcement itself, which appeared in the Federal Register of 
January 27, 1999, Part VII, 64 FR 4257.
    In the following clarifications and guidance we have sought to 
respond to the issues raised by all of the interested parties. The 
Clarifications in Part I, below clarify the following issues of 
interest to applicants for the Assets for Independence Demonstration 
Program:
    A. Custodial Accounts. Applicants are advised that grantees will 
have the option of establishing Individual Development Accounts (IDA's) 
either as Trusts or as Custodial Accounts.
    B. ``Non-Federal Share Agreements'' must include a schedule of 
deposits that will assure that there will be at all times in a 
Demonstration Project's Reserve Fund sufficient non-Federal matching 
contribution funds to equal the maximum amount pledged as matching 
contributions under the ``Savings Plan Agreements'' for all IDA's then 
open (which may be less than the $2000 for each account stated in the 
published Program Announcement).
    C. The ``Savings Plan Agreement'', required under PART II Section 
G(3)(n) of the Program Announcement as part of the instrument creating 
the IDA, should, under item #2, set the matching contribution rate for 
the account up to a total of not more than $2000 in Federal grant 
funds, during the project period, rather than a total of all match 
funds as stated in the published Program Announcement. It should also 
include a new item #9 providing for withdrawal of savings if 
participant leaves the program.
    D. Project and Budget Periods. Applicants are advised that they may 
submit applications for project and budget periods of up to five years, 
but of at least three years' duration.
    E. Additional matching contributions. Applicants are advised that 
once the statutory requirement of equal matching contributions to IDA's 
from non-Federal sources and Federal grant funds is satisfied, 
additional matching contributions may be made from non-Federal sources 
or even from Federal sources such as TANF where the legislation or 
policies governing such programs so permit. In the case of TANF funds, 
such contributions would be limited to IDA's of TANF recipients.
    F. Income eligibility. The actual income limits from IRS tables for 
the Section 32 Earned Income Tax Credit are set forth.
    G. Earned Income. The pertinent language from Section 911(d)(2) of 
the Internal Revenue Code, defining ``earned income'', is set forth.

Part I. Clarification of Assets for Independence (IDA) Program 
Announcement Published in the Federal Register of 1/27/1999

A. Part II G. of the Program Announcement: (3) Establishment of 
Individual Development Accounts, and (4) Custodial Accounts

    The Program Announcement as published treats ``Custodial Accounts'' 
in the traditional sense of accounts established on behalf of minors or 
persons with disabilities, who do not have the capacity to manage an 
account on their own behalf. The Announcement therefore included as 
paragraph (4) of PART II Section G a discussion of how such ``custodial 
accounts'' might be established; and in the preceding paragraph (3) it 
required that all other Individual Development Accounts (IDA's) be 
established as trusts pursuant to Section 404(5)(A) of the Assets for 
Independence Act (AFIA).
    In continuing discussions by the IDA working group in OCS it has 
been suggested that the intent of subparagraphs (A) and (B) of section 
404(5) of the AFIA, when taken together, was not to limit ``Custodial 
Accounts'' to accounts for minors or persons with disabilities, but to 
offer alternative methods for the establishment of all IDA's, either as 
trusts under subparagraph (A) or as ``Custodial Accounts'' under 
subparagraph (B). This position has been put forward by those who have 
pointed out that ``trusts'' and ``trust instruments'' have very special 
meaning under banking laws, requiring adherence to special regulations 
and reporting requirements which might result in banks being less 
willing to participate in the IDA program. This same concern has been 
expressed in communications from banks.
    Consequently, we have reached the conclusion that the intent of 
Section 404(5)(B) of the AFIA is, indeed, to offer an alternative 
method for establishing IDA's, rather than simply to provide accounts 
for minors and disabled persons, while requiring that all other IDA's 
be trusts under subparagraph (A). It should be noted that under 
subparagraph (B) of the AFIA that a ``Custodial Account'' there 
described is subject to all of the requirements described in 
subparagraph (A) with the exceptions (1) that it is not called a trust; 
(2) that the assets of the account may be held by a ``person'' or 
institution other than a ``Qualified Financial Institution'' 
satisfactory to the Secretary; and (3) consequently that the custodian 
acting as trustee can be the Qualified Entity, or Grantee. Note that 
the

[[Page 14924]]

Secretary has nonetheless determined that the assets of the Individual 
Development Account must be held in an insured financial institution.
    As a result of this interpretation, the following clarifications 
are made to the Program Announcement published on January 27, 1999:
    (1) PART I. D. Definition of Terms should read:
* * * * *
    (5) Individual Development Account means a trust or a custodial 
account created or organized in the United States exclusively for the 
purpose of paying the qualified expenses of an eligible individual, or 
enabling the eligible individual to make an emergency withdrawal, but 
only if the written governing instrument creating the trust or 
custodial account meets the requirements of the AFI Act and of the 
Project Eligibility and Requirements set forth in this Announcement. 
[See PART II, Section G(3) and (4).
    (2) PART II Section G Paragraph (3) should read as follows:
    (3) Establishment of Individual Development Accounts. Grantees must 
create, through written governing instruments, either (a) Trusts under 
this paragraph, or (b) Custodial Accounts described in Paragraph (4) 
below, which will be Individual Development Accounts on behalf of 
Project Participants. Trustees of Trusts must be Qualified Financial 
Institutions. Custodians of Custodial Accounts may be Qualified 
Financial Institutions, other insured financial institutions 
satisfactory to the Secretary, or Demonstration Project Grantees. In 
every case the participating insured financial institution and the 
Demonstration Project Grantee shall be parties to the written governing 
instruments creating the Trust or Custodial Account, which must contain 
the following provisions:
* * * * *
    (3) PART II G. Paragraph (4) of the Assets for Independence Act 
(IDA) Program Announcement, ``Custodial Accounts'', should read as 
follows:
    ``(4) Custodial Accounts. Notwithstanding the provisions of 
Paragraph (3), above, Grantees may, in the alternative, create, through 
written governing instruments, Custodial Accounts which shall be 
Individual Development Accounts on behalf of Project Participants, 
except that they will not be trusts. As in the case of trusts 
established under paragraph (3), the written governing instruments of 
the accounts must contain the requirements outlined in subparagraphs 
(a) through (h) of that paragraph, with the following exceptions. 
Whereas trustees of the trusts created under Paragraph (3) must be 
Qualified Financial Institutions, the assets of the custodial account 
may be held by a bank or another ``person'' (or institution) who 
demonstrates to the satisfaction of the Secretary that the manner in 
which the account will be administered will be consistent with the 
provisions of the AFIA, and that the IDA's will be created and 
maintained as described in paragraph (3) and section 404(5)(A) of the 
AFIA. In addition, in the case of a custodial account treated as a 
trust by reason of this paragraph, the custodian of such account may be 
the Project Grantee, provided that it can assure compliance with the 
requirements of Paragraph (3) above, and Section 404(5)(A) of the AFIA. 
These arrangements would place the ``custodial'' responsibilities with 
the grantee, and relieve financial institutions of trustee obligations. 
The Secretary has determined that the assets of any such accounts must 
be held in an insured financial institution and be subject to the 
provisions of Paragraph M, below, pertaining to agreements with 
applicants/grantees.
    (4) PART II Section M of the Program Announcement should read as 
follows:
    M. Agreements with Partnering Financial Institutions. All 
applicants under Priority Area 1.0 must enter into agreements with one 
or more insured Financial Institutions, in collaboration with which 
Reserve Funds and Individual Development Accounts will be established 
and maintained. To be considered for funding, an Application under 
Priority Area 1.0 must include a copy of an Agreement or Agreements 
with one or more partnering Qualified Financial Institutions (or in the 
case of Individual Development Accounts established as Custodial 
Accounts, an insured financial institution satisfactory to the 
Secretary), which state(s) that the accounting procedures to be 
followed in account management will conform to Guidelines established 
by the Secretary (which will be issued prior to grant awards and made 
available to grantees at time of award), and under which the partnering 
Financial Institution agrees to provide data and reports as requested 
by the applicant. In the case of IDA's established as Trusts under 
Section G(3), above, the partnering financial institution must be a 
Qualified Financial Institution as defined in PART I Section D(12). In 
the case of IDA's established as Custodial Accounts, the partnering 
financial institution must be insured and must meet the requirements of 
Section G(4), above, to the satisfaction of the Secretary. The 
Agreement may also include other services to be provided by the 
partnering Financial Institution that could strengthen the program, 
such as Financial Education Seminars, favorable pricing or matching 
contributions provided by the Financial Institution, and assistance in 
recruitment of Project Participants.

B. PART II I. of the Program Announcement: Non-Federal Matching Funds 
Requirements and PART IV D.(5) Pertaining to ``Non-Federal Share 
Agreements''

    In these sections of the Announcement, Applicants are told that 
applications must include ``non-Federal Share Agreement(s)'' with 
provider(s) of the required 100% non-Federal matching contribution(s) 
which must include ``* * * (2) a schedule of deposits to the project's 
Reserve Fund of at least ten percent of the total committed for the 
entire project at the start of each of the five Project Years, plus any 
additional amounts needed to assure that there is at least $2000 of 
non-Federal matching contribution funds in the Reserve Fund for each 
Individual Development Account that has been opened; * * *''.
    Comments received from the field have pointed out that the effect 
of the quoted passage is to limit the number of Individual Development 
Accounts that could be opened by a grantee to the amount of their non-
Federal matching contributions (which is equal to the amount of their 
grant) divided by 2000, even if the grantee contemplated a maximum non-
Federal contribution to any one Individual Development Account of only 
$1000, thus limiting the grantee to opening but half of the number of 
accounts planned to be opened in the project. In other words, a grantee 
receiving Federal funds that would make $100,000 available for matching 
contributions--and hence an equal amount in non-Federal matching 
contributions--under the terms of the Announcement would be limited to 
50 deposits of $2000 each, and hence could open no more than 50 
accounts, even if the maximum matching contribution per account 
proposed by the grantee were $1000, with the expectation of opening 100 
accounts.
    The intent of the quoted passage in the Announcement was not to 
limit the number of accounts proposed to be opened by an applicant, but 
rather to assure that the Reserve Fund would have in it at all times 
the amounts necessary to meet the promised matching contributions to 
all Individual Development Accounts then open and maintained by the 
grantee.

[[Page 14925]]

    In order to achieve this assurance and at the same time permit 
flexibility among applicants to design programs that best meet the 
needs of their communities, PART II I. and PART IV D (5) with reference 
to the ``Non-Federal Share Agreement(s)'' item (2) in each section, 
beginning ``(2) a schedule of deposits * * * '' should read as follows:
    `` * * * (2) a schedule of deposits to the projects's Reserve Fund 
of at least ten percent of the total committed for the entire project 
at the start of each of the five Project years, plus any additional 
amounts needed to assure that there are at all times in the Reserve 
Fund non-Federal matching contribution funds equal to the total amounts 
pledged as maximum matching contributions under the ``Savings Plan 
Agreements'' for all Individual Development Accounts then open and 
being maintained by the grantee as part of the demonstration project.''

C. PART II Section G(3)(h) of the Program Announcement, Pertaining to 
``Savings Plan Agreement''

    In this section of the Announcement, item (2) to be included in 
such Agreements is: ``the rate at which participant savings will be 
matched (from one dollar to eight dollars for each dollar in savings 
deposited by Participant, up to a total of $2000 during the five-year 
project period)'' (emphasis supplied). This limitation is inaccurate. 
The $2000 only applies to federal match, so the phrase should read: 
``up to a total of not more than $2000 in Federal grant funds matched 
by an equal amount in non-Federal contributions during the project 
period''.
    A prospective applicant has also asked whether and how a Project 
Participant can withdraw their personal savings from an IDA if they 
decide to leave the program, since withdrawals are only possible with 
the approval of the grantee. Clearly, a Participant may choose to leave 
the program, forfeiting any accrued matching contributions and income 
earned thereby; and the project grantee should in such a case approve 
the withdrawal by the Participant of his or her savings plus income.
    Consequently, a new item #9 should be included in the description 
of the ``Savings Plan Agreement'' under PART II G (3)(h), as follows: 
``(9) a provision that should the Project Participant decide to leave 
the program, the grantee agrees that it will co-sign a withdrawal of 
the Participant's savings plus any income accrued thereon, with the 
understanding that the Participant thereby loses any right to receive 
matching contributions.''

D. PART II Section C. Project and Budget Periods Under Priority Area 
1.0

    Several potential applicants have asked if grant applications can 
be for less than five year budget and project periods. In other words, 
does the Program Announcement intend to call for applications of up to 
five years. OCS has determined that applications may be for less than 
five years, provided they are for at least three years' duration. In 
other words, applications may be for project and budget periods of 
three to five years' duration.
    As a result of this interpretation, the following clarifications 
are made to the Program Announcement published on January 27, 1999:
    (1) PART II Section C should read as follows:
    C. Project and Budget Periods under Priority Area 1.0. This 
announcement is inviting applications under Priority Area 1.0 for 
project and budget periods of up to five (5) years (but at least three 
(3) years). Grant actions, on a competitive basis, will award funds for 
the full project and budget periods of three to five years' duration. 
As noted below in Section E., subject to the availability of funds, 
grantees may be offered the opportunity to compete for supplementary 
funding in later years during the project.

    Note: Applicants should be aware that OCS funds awarded pursuant 
to this Announcement will be from fiscal year (FY) 1999 funds and 
may not be expended after the end of a five year Project/Budget 
Period to support administration of the project or matching 
contributions to Individual Development Accounts which may be open 
at that time.

    (2) PART II Section E should read as follows:
    E. Funds Availability and Grant Amounts under Priority Area 1.0. In 
Fiscal Year 1999 approximately $7.44 million is available under 
Priority Area 1.0 for funding commitments to approximately 30 projects, 
not to exceed $500,000 and averaging a total of approximately $250,000 
for the three- to five-year project. Applicants are reminded that grant 
awards are limited to the amount of committed non-Federal cash matching 
contributions, and are urged to make realistic projections of project 
needs over the duration of the project and propose project budgets 
accordingly. Draw-down of grant funds over the three- to five-year 
budget period will be permitted in amounts that will match non-Federal 
deposits into the Project Reserve Fund. (See PART II Section I.) As 
noted above, subject to availability of funds and the progress of 
individual demonstration projects, grantees may be offered the 
opportunity to compete for supplementary funding in later years during 
the project, if there were a determination that this would be in the 
best interest of the government.

E. Part II Section G(1)(b). Use of Amounts in the Reserve Fund; and 
Section G(5) Deposits in Individual Development Accounts. (a) Matching 
Contributions

    Many persons now operating IDA programs and other potential 
applicants have asked whether programs could make greater non-Federal 
matching contributions to Individual Development Accounts (IDA's) than 
the amount of the match from Federal grant funds. A careful review of 
the AFI Act has led OCS to conclude that the intent of section 410(a) 
of the Act is to assure that for every dollar of Federal grant funds 
under the AFI Act deposited into or to the credit of an IDA there is 
similarly deposited a dollar from the non-Federal contributions 
described in sections 405(c)(4) and 406(b)(1) (the required 100% non-
Federal share); and that once that matching contribution of equal 
amounts of non-Federal contributions and Federal grant funds is 
achieved, there is no reason why grantees cannot make additional 
contributions to the IDA accounts, from other non-Federal sources, or 
even from Federal sources such as TANF funds, where the legislation or 
policies governing such programs so permit.
    As a result of this interpretation, the following clarifications 
are made to the Program Announcement published on January 27, 1999:
    (1) Paragraph (A) of PART II Section G(1)(b), Use of Amounts in the 
Reserve Fund, should read as follows:
    (A) at least 90.5% of the Federal grant funds in the Reserve Fund 
shall be used as matching contributions to Individual Development 
Accounts for Project Participants, matched by non-Federal contributions 
in accordance with Paragraph (5), below.
    (2) Paragraph (5)(a) of PART II Section G(5), Deposits in 
Individual Development Accounts, should read as follows:
    (a) Matching Contributions. Not less than once every three months 
during the demonstration project grantees will make deposits into 
Individual Development Accounts, or into a parallel account maintained 
by the grantee, as matching contributions to deposits from earned 
income made by Project Participants during the period since the 
previous deposit.

    Note: Deposits made by Project Participants shall be deemed to 
have been

[[Page 14926]]

made from earned income so long as the Participant's earned income 
(as defined in Section 911(d)(2) of the Internal Revenue Code of 
1986) during the period since the Participant's previous deposit in 
the account is greater than the amount of the current deposit. 
Matching contributions must be made to IDA's in equal amounts from 
Federal grant funds and the non-Federal public and private funds 
committed to the project as matching contributions, as described in 
Sections 405(c)(4) and 406(b)(1) of the AFI Act. Such matching 
contribution deposits by grantees may be from $0.50 to $4 in non-
Federal funds and an equal amount in Federal grant funds, for each 
dollar of earned income deposited in the account by the Project 
Participant in whose name the account is established. Once such 
matching contribution deposits are made, grantees may make 
additional matching contributions to IDA's from other non-Federal 
sources, or other Federal sources such as TANF, where the 
legislation or policies governing such programs so permit. At the 
time matching contribution deposits are made, the grantee will also 
deposit into the Individual Development Account (or the parallel 
account) any interest or income that has accrued since the previous 
deposit on amounts previously deposited in or credited to that 
account.

F. PART II Section G(2)(a) of the Program Announcement: Participant 
Eligibility

    This section describes income eligibility as not exceeding the 
earned income amount described in Section 32 of the Internal Revenue 
Code of 1986 which deals with the Earned Income Tax Credit. Because 
applicants/grantees may have difficulty in ascertaining this 
information, we are here providing the income limits of Section 32 as 
provided by the Internal Revenue Service:
    The most recent EITC Earned Income Guidelines which set the limits 
on annual income for eligibility in the IDA Program are as follows:

--For a household without a child: $10,030.
--For a household with one child: $26,473.
--For a household with more than one child: $30,095.

Applicants are reminded that there is also an assets test for 
eligibility in the program.

G. PART II Section G(5) of the Program Announcement: Deposits in 
Individual Development Accounts; (a) Matching Contributions

    This section of the Announcement requires, pursuant to the AFIA, 
that Participant deposits in IDA's be made from earned income (as 
defined in Section 911(d)(2) of the Internal Revenue Code of 1986). 
Because of the difficulty that some applicants might face in obtaining 
copies of this section of the code, OCS provides in this clarification 
the pertinent language of Section 911(d)(2), which provides, in 
relevant part ``the term `earned income' means wages, salaries, or 
professional fees, and other amounts received as compensation for 
personal services actually rendered''.

PART II. Additional Guidance for Applicants Under the Assets for 
Independence (IDA) Demonstration Program Announcement Published in 
the Federal Register of January 27, 1999

    In response to queries and comments from interested parties about 
the Assets For Independence Act and the Assets for Independence (IDA) 
Demonstration Program Announcement published in the Federal Register on 
January 27, 1999, OCS is pleased to provide the following additional 
guidance for the benefit of Applicants for the program. The Guidance 
material is presented in a question and answer format grouped according 
to Program Announcement sections and particular areas of interest.
    In considering this new program and preparing applications for 
submission to OCS, applicants should bear in mind, first, that this is 
a demonstration program, which is seeking through evaluation to learn 
more about what works and what doesn't, and about the value of asset 
accumulation as a tool in assisting lower income individuals and 
families to achieve self-sufficiency; and second, that the Individual 
Development Account (IDA) is a tool, which when used in conjunction 
with other tools such as education, training, mentoring, family 
development, and other interventions found in successful income and 
capacity building programs, can lead to upward mobility and lasting 
economic independence for individuals and families.

A. Partnerships and Matching Funds

    (1) Which Federal funds may be used as matching and which ones may 
not be used?
    The Assets for Independence Act (AFIA) limits grant amounts to not 
more than ``the aggregate of funds committed as matching contributions 
from non-Federal public or private sources''. Under Appropriations Law, 
Federal funds can only be considered ``non-Federal'' for purposes of 
meeting a ``non-Federal share requirement'' if the authorizing 
legislation for such funds contains specific language to that effect. 
To the best of our knowledge the Community Development Block Grant 
(CDBG) funds are the only Federal funds that meet this requirement for 
the purposes of the AFIA. The CDBG statute specifically states that 
once those funds are received by the State they are to be considered 
State funds for matching purposes.
    (2) Is it the intent of AFIA that the State agency(ies) have 
already established partnerships with specific not-for-profits prior to 
application, or is a plan for such considered acceptable?
    Under Priority Area 1.0, and under Section 404(7) of the AFIA, a 
``Qualified Entity'' is defined as ``(I) one or more not-for-profit 
organizations described in section 501(c)(3) of the Internal Revenue 
Code of 1986 and exempt from taxation under section 501(a) of such 
Code; or (ii) a State or local agency, or a tribal government 
submitting an application under section 405 jointly with an 
organization described in clause (I)''.
    Whenever more than one entity submit applications jointly, one 
entity must be the lead applicant which signs the SF424 and is legally 
and fiscally responsible to OCS for implementation of the project. We 
expect that in most cases involving joint applications by not-for-
profits and a State or local agency or Tribal government, one of the 
not-for-profit organization will be the lead applicant signing the 
SF424 Application for Federal Assistance, and which will establish a 
Reserve Fund. However, should the joint applicants agree, the State or 
local agency or Tribal government may be the lead applicant signing the 
SF424. In either case, a ``plan'' for partnership between a State 
agency and not-for-profit organizations would not be sufficient. (See 
Question 3, below)
    (3) If a not-for-profit 501(c)(3) organization applies jointly with 
a State or local government agency does that organization need to 
establish a Reserve Fund with that agency as a partner?
    If the not-for-profit agency is the lead applicant, it would 
establish a Reserve Fund; and if the State or local agency is providing 
non-Federal matching contributions, it would enter into a ``Non Federal 
Share Agreement'' with the not-for-profit entity. (See Question 2, 
above).
    (4) If a State provides funding for IDA programs up to $1 million, 
after the enactment of the AFIA legislation, is it possible for that 
State, along with the non-profit entities, to apply for a waiver on 
program requirements from sections 407 through 411?
    No. The Act ``grandfathered'' only State programs in effect as of 
October 27, 1998 and only those States may take advantage of Section 
405(g) which permits States to avoid application of Sections 407 
through 411 to the extent they are inconsistent with existing State 
statutory requirements.

[[Page 14927]]

    (5) If an applicant obtains non-Federal funding that is restricted 
to only one or two of the ``Qualified Expenditures'' under the AFIA 
(e.g. home purchase or business capitalization), can it restrict all 
IDA's in its program if such restricted funds are the only non-Federal 
matching funds available to the program?
    Applicants can design their programs as they wish, as long as they 
meet the AFIA/Announcement requirements. In other words, a given 
project does not have to offer IDA's for all of the qualified expenses.
    (6) Will applications submitted individually by individual 
organizations within a State be subject to the same criteria as they 
would if they applied jointly submitting a statewide application?
    Review criteria will be the same for either situation, unless the 
statewide application is one which falls under Priority Area 2.0, which 
requires that the State program have been in existence and funded at a 
level of at least $1 million as of October 27, 1998.
    (7) How will applications from an individual organization weigh 
against an application from a State?
    A State agency can only apply jointly with a 501(c)(3) 
organization. Otherwise, note the differences in the Grant Announcement 
between Priority Area 1.0 and Priority Area 2.0.
    (8) Can the non-Federal matching requirement include prospective 
funding sources?
    No. As stated in Part II (I) of the grant announcement, a non-
Federal share agreement must include a commitment to provide funds 
contingent only on award of grant funds. The grantee must document the 
commitment of required match in order to receive Federal funds. Under 
section 406(b)(1) of the Assets for Independence Act Federal grants are 
limited in amount to no more than ``the aggregate amount of funds 
committed as matching contributions from non-Federal public or private 
sector sources''.
    (9) What are the possible ways that a financial institution could 
participate with the nonprofit in assisting IDA holders?
    Financial institutions may play an important role in collaborating 
with qualified entities to further the IDA program objectives. Some of 
the possible ways that financial institutions might assist include: 
Reducing fees, matching deposits, supporting the qualified entity's 
operating systems, helping with financial education, or engaging 
schools, churches, or other nonprofits for marketing and outreach. Some 
financial institutions are providing modest financial assistance to the 
nonprofit IDA sponsor for matching contributions.
    (10) Will banks get Community Reinvestment Act credit for 
participating in IDA projects?
    We expect that the Federal Financial Institutions Examination 
Council will soon provide guidance for financial institutions 
concerning whether individual development accounts may qualify for 
favorable consideration under the Community Reinvestment Act.
    (11) Does the Reserve fund have to be established only in a Bank? 
Can we use a credit union or a money market fund?
    A Qualified Financial Institution is one that is federally insured, 
or, if no federally insured institution is available, State insured. 
Credit unions would therefore be eligible while money market funds 
would not be. Note that if the grantee chooses to establish IDA's as 
``Custodial Accounts'' rather than as Trusts, funds could be deposited 
in other financial institutions so long as they are insured. In any 
case the Financial Institution must also agree to provide the required 
evaluation data as provided in PART II Section M of the Program 
Announcement.

B. Federal Project Funds

    (12) When does HHS expect to fund projects?
    Funding decisions will be made no later than July 27, 1999. Grants 
should be awarded within 30 days thereafter, and in no case after 
September 30, 1999.
    (13) Can one of the participants of a joint project mutually agree 
with its joint participants to receive more than its proportional share 
for program administration? (i.e., May a State or local government 
partner provide program administration at no cost to the project?)
    No. Section 407(c)(3) of the AFIA states that if two or more 
qualified entities are jointly administering a project, no qualified 
entity shall use more than its proportional share.
    (14) How will grantees draw down their federal funds?
    Project grantees are permitted to draw down grant funds over the 
five-year budget period in amounts that will match non-Federal deposits 
into the Reserve Fund (which must be in amounts of not less than 10% 
per project year of the total committed). The process for draw down of 
grant funds is accomplished through an account set up with the Payment 
Management System of the Department of Health and Human Services for 
which the grantee will receive instructions along with their notice of 
award.
    (15) Are there limits on the investments a grantee can make?
    The AFIA requires that the Secretary of Health and Human Services 
establish guidelines for investing amounts in the Reserve Fund in a 
manner that provides an appropriate balance between return, liquidity, 
and risk. Such guidelines will be made available at the time of the 
grant award.
    (16) If grant money is left over in the Reserve fund at the end of 
the fifth project year, can the grantee consider those funds 
``expended'' for those project participants who have been enrolled in 
an IDA but who have not completed their savings cycle or commitment?
    No. Not if the funds have not been committed as matching 
contributions to specific Individual Development Accounts. Under 
section 407(d) of the AFIA such grant funds must be returned to the 
Secretary (see below). Those funds which have been committed as 
matching contributions to IDA's and deposited in or allocated to a 
parallel account, will be considered to have been ``expended'' or 
``obligated'' by the grantee, and would consequently not be returned to 
the Secretary.
    Section 407(d) of the Act requires that at the termination of the 
demonstration project (end of the five-year project period) the grantee 
shall return to the Secretary the amounts in the Reserve Fund 
attributable to the OCS grant. This will be an amount which would be 
the same percentage of the funds remaining in the Reserve Fund as the 
percentage of all funds deposited into the Reserve Fund represented by 
the OCS grant amount. As provided in the statute, the amount of 
remaining funds to be returned to the Secretary is arrived at by 
dividing the total of all funds deposited into the Reserve Fund during 
the course of the project, including both Federal and non-Federal 
funds, into the amount of the OCS grant, and multiplying that 
percentage by the amount in the Reserve Fund at the time of termination 
or the end of the project period.
    (17) Will it be possible to apply for supplemental funds to pay for 
administrative services?
    No. There are no supplemental funds to support administrative 
services. This is why applicants are encouraged to bring ``additional 
resources'' to the project, which may be cash or in-kind, Federal or 
non-Federal, so long as the uses to which Federal funds are put are 
permissible under the terms of the grant or contract that awarded those 
funds.
    (18) Can a project use more than 7.5% of the Federal grant funds 
drawn down in one year of the project for support and administrative 
costs as long as they

[[Page 14928]]

do not use more than 7.5% of the Federal funds by the end of the 
project and budget period?
    Yes.
    (19) Can Federal IDA funds be used retroactively to fund accounts 
opened prior to receiving the grant?
    Federal AFIA grant funds may not be used retroactively. In 
accordance with 45 CFR 74.28, a recipient may charge to the grant award 
only allowable costs resulting from obligations incurred during the 
approved funding period. The grantee may not use Federal grant funds to 
match any IDA deposits made prior to the grant award.
    (20) Do childcare and transportation count as administrative 
expenses?
    No. But we encourage applicants to find other resources to cover 
such expenses.

C. Project Qualifications

    (21) Is an applicant with a 501(c)(3) application pending with the 
IRS eligible for this program?
    No. The applicant must be an approved 501(c)(3) organization at the 
time the application is submitted.
    (22) Will a grantee that is funded in year one have to recompete in 
year two to receive the same amount it received in year one? Or will it 
just have to compete for funds in addition to that base amount?
    FY 1999 grantees will receive one grant of not more than $500,000 
for a five-year demonstration project. OCS expects grants to average 
approximately $250,000. As noted in the Announcement, OCS, in later 
years, may invite requests for supplemental funding subject to a 
showing of need, availability of funds, and a determination that it is 
in the best interests of the government.
    (23) Does the project summary count as part of the thirty pages?
    No.
    (24) If an applicant receives only 8 of the possible 15 points in 
Element IV for documenting the 100% non-federal match, and 2 additional 
points for meeting the Preferences required in the legislation, what 
happens to the other 5 possible points?
    Under Element IV of the Review Criteria 8 points will be given to 
an application which mobilizes no more than the required 100% cash non-
Federal match and meets the statutory preference. Award of the other 7 
points will be based on judgment in the review process on the adequacy 
of additional resources, in cash and in-kind, to support the activities 
and interventions identified in sub-Element II (b) as part of the 
effort to achieve participant self-sufficiency. Under the statutory 
preference, an applicant that does not mobilize a proportionately 
greater amount of the required 100% cash match from the private sector 
as opposed to public sources will have its review score reduced by 2 
points.
    (25) Will application reviewers handicap scoring for rural areas 
without strong resource bases?
    Rural areas will not be handicapped for evaluation purposes. 
However, rural applicants may want to contact their State Rural 
Development Council for assistance or the National Rural Development 
Partnership at (202) 690-4746 (https://www.rurdev.usda.gov/nrdp).
    (26) Will a designated proportion of grantees be rural?
    No, but geographic distribution is a consideration in funding 
decisions by OCS. Note that OCS is interested in funding a variety of 
projects that will reflect a diverse range of demographics, thus 
enriching the overall program evaluation.
    (27) Is a credit union that is currently operating an IDA program 
eligible to apply for an IDA grant from HHS?
    Credit unions, on their own, are not considered eligible applicants 
because they are not 501(c)(3) organizations. However, a credit union 
may collaborate with a qualified 501(c)(3) applicant as Qualified 
Financial Institution.
    (28) Are Qualified Entities in the Trust Territories eligible to 
participate in this program?
    Yes.

D. Participant Eligibility

    (29) What are the Section 32 limits on income?
    The most recent EITC Earned Income Guidelines that set the limits 
on annual income for eligibility in the IDA Program are as follows:

--For a household without a child: $10,030.
--For a household with one child: $26,473.
--For a household with more than one child: $30,095.

    Applicants are reminded that there is also an assets test for 
eligibility in the program.
    (30) If someone is eligible at the time of the initial entrance 
into the program, what happens if his or her situation changes before 
the program ends?
    Grantees could choose to check an individual's financial 
eligibility yearly, but they are only obligated to do so once at the 
beginning of program administration.
    (31) Do recent college graduates who are temporarily poor qualify?
    See section 408 of the legislation. Any individual who is a member 
of a household that is eligible for assistance under TANF, or meets the 
Income and Net Worth Test shall be eligible to participate in a 
demonstration project under this title.
    (32) Are there any restrictions for participants based on immigrant 
status?
    If the entity that determines eligibility of program Participants 
is a nonprofit charitable organization, that entity is not required to 
verify the citizenship or immigration status of the participants, and 
thus individuals who otherwise meet program eligibility standards will 
be eligible to participate regardless of citizenship or immigration 
status. If, on the other hand, a state or local governmental entity 
determines eligibility of participants, verification procedures must be 
used to ensure that only citizens or qualified aliens receive services 
under the demonstration.
    (33) Relocation: Would it be possible to enable participants who 
move out of an IDA project area to be able to continue to contribute to 
their accounts as long as these accounts are maintained in a 
participating financial institution?
    AFIA does not allow individual participants to keep their accounts 
active once they move out of an IDA project area.
    (34) How might young people and persons with disabilities 
participate in an IDA program?
    Young persons and persons with disabilities can participate like 
any other eligible person so long as they have earned income from which 
to make deposits in an IDA. In addition, under section 404(8)(D) of the 
AFIA and PART II Section G (6)(d) of the Program Announcement, at the 
request of the Project Participant and with the written approval of a 
responsible official of the Grantee, amounts may be paid directly from 
an IDA into another IDA established for the benefit of the 
Participant's spouse or a dependent of the Participant.
    (35) Do disability payments or small gifts from a participant's 
family count as ``earned income''?
    No. The AFIA refers to deposits by Project Participants from earned 
income ``as defined in section 911(d)(2) of the Internal Revenue Code 
of 1986''. The pertinent language of that section provides `the term 
'earned income' means wages, salaries, or professional fees, and other 
amounts received as compensation for personal services actually 
rendered * * *'' These items do not meet that definition.

E. Account Structure

    (36) What are the possible ways that a ``custodial account'' could 
be set up to satisfy the requirements of the statute?

[[Page 14929]]

    See Section I. A. of this Notice. The Act does not restrict the IDA 
to one particular structure, but requires that the IDA be established 
as a trust or a custodial account. In either case, the same 
requirements set out in PART II Sections G and H would apply, except as 
noted here. For example, whether established as a trust or a custodial 
account, the provisions of PART II Section G (3) would apply, except 
that if established as a custodial account, the requirement under 
Paragraph (3) that the trustee must be a Qualified Financial 
Institution would not apply. If a custodial account, the custodian 
could be the Qualified Entity, or Grantee, and the assets of the 
account could be held by another person or institution who demonstrates 
to the satisfaction of the Secretary that the manner in which the 
account would be administered would be consistent with the provisions 
of the AFIA and the account would constitute an Individual Development 
Account as defined in the statute and the Program Announcement, except 
for the fact that it is not a trust. In the case of a Custodial Account 
the assets would still have to be held in an insured financial 
institution. In short, but for the name, the repository of account 
assets, and the ``person'' or institution who may be the custodian 
acting as a trustee, a Custodial Account must meet all of the 
requirements which must be met by an IDA established as a trust.
    (37) What happens to an individual's account in the event of death?
    Under Section 404(5)(A)(vi) of the AFIA and PART II Section G 
(3)(g) of the Program Announcement, the instrument establishing the IDA 
must include a provision in accordance with the direction of the 
Project Participant, that in the event of death, the assets of the 
account shall be transferred to another IDA established for an eligible 
individual. However, since the personal savings in the account and any 
income earned thereon belong to the Participant, he or she is free to 
choose to dispose of such savings as they may wish. If the Participant 
fails to designate another IDA or eligible individual, or chooses not 
to have the account transferred to another IDA but chooses to dispose 
of his or her own savings in some other way, then the accumulated 
matching contributions allocated to the account and any income earned 
on these contributions shall be returned to the Reserve Fund of the 
project.
    (38) Are monthly deposits required?
    No. Minimum and maximum monthly deposits by individual participants 
will be left to the discretion of the grantee and should be part of the 
Savings Plan Agreement. Section 410(a) of the AFIA states that not less 
than once every three months during each project year, each qualified 
entity shall make deposits into the IDA. Setting savings goals, 
including amount and frequency of deposits, is an important part of the 
program.
    (39) Is an IDA attachable in a legal judgment?
    The Assets for Independence Act does not address the issue of 
whether IDA's may be attached by creditors. Generally, accounts at 
financial institutions may be attached by judgment creditors unless 
there is a Federal or State statutory provision that protects the 
relevant payment or account from attachment. For example, Social 
Security benefits, Supplemental Security Income benefits, Veteran's 
benefits, and Federal Railroad Retirement Act of 1974 benefits are 
protected from attachment and the claims of judgment creditors by 
Federal law. See 42 U.S.C. 407(a); 42 U.S.C. 1383; 38 U.S.C. 530; and 
45 U.S.C. 231m(a). The ownership of the IDA account may also impact the 
attachment question. In general, subject to the applicable State law, a 
judgment creditor could attach the individual's contribution account, 
but would not be permitted to attach the matching contributions in a 
parallel account, because such a parallel account is not owned by, or 
in the name of, the individual Project Participant. For this reason 
alone it is important that matching contributions be deposited in a 
parallel account rather than the IDA itself.
    (40) What is the minimum/maximum length of time for an IDA?
    There is no statutory minimum or maximum length of time for an IDA, 
other than duration of the demonstration project, which is five years. 
After that time, no Federal funds could be used to support an account. 
The length of time for each IDA shall be determined by the Program 
Participant and the grantee. We expect that most IDA's will last an 
average of one to three years.
    (41) Deposits to IDA accounts are required to be by cash or checks. 
Are money orders or transfers from other bank accounts allowed?
    Yes. The AFIA requires deposits to IDA's to be by cash or check. 
Money Orders are considered to be checks and are therefore acceptable. 
Electronic funds transfers are specifically identified in the Program 
Announcement as acceptable. Presumably transfers from other bank 
accounts would be electronic transfers.
    (42) Is there a maximum amount that can be deposited each month or 
year?
    No. Maximum monthly and yearly deposits by individual participants 
will be set out in the Savings Plan Agreement between the Participant 
and the Grantee. Note, however, that not more than $2000 of Federal 
funds for an individual or $4000 of Federal funds per household may be 
deposited into IDA's over the course of the project.
    (43) When an IDA project ends, what entity will continue to 
exercise oversight over the savings accounts that have not yet been 
closed--both individual savings and those accounts that hold matching 
funds? What happens to an individual's account after the end of the 
project period if they are not yet ready to use the saved funds?
    As noted below, grantees are admonished to schedule their account 
activities so that all IDA accounts will reach their maximum savings 
goal by the end of the five-year demonstration project. However, where 
this is not possible, or where circumstances prevent achieving that 
goal, grantees will be free to continue oversight of such accounts, but 
without the use or availability of Federal grant funds. Moreover, it 
could well be that at the end of the five-year project period, for one 
reason or another not all IDA accounts would have been paid out for 
Qualified Expenses even if the planned savings goals have been 
achieved.
    In either of these cases, grantees must create escrow accounts for 
the funds, both savings and matching, in each IDA remaining at the 
close of the five-year project. Such escrow accounts shall be held by 
the partnering financial institution for the benefit of the named 
Project Participant, to be used only for a qualified expense as defined 
in the Assets for Independence Act and under the terms of the Savings 
Plan Agreement for that account.
    Section 407(d) of the Assets For Independence Act (AFIA) states 
that any ``unused'' Federal grant funds remaining in the Reserve Fund 
shall be returned to the Secretary when the project terminates. 
However, grant funds committed to an IDA as match to participant 
savings would not be subject to being returned even though in a 
``virtual'' parallel account.
    (44) How does a project start 3-5 year IDA accounts in the last 2 
years of a five-year project?
    In accordance with appropriations law, Federal grant funds are no 
longer available after a five-year project period; therefore there can 
be no extension of these grants. It is anticipated that most IDA 
accounts will be scheduled to achieve their maximum matched savings 
within one to three years; and grantees should plan to schedule account 
activities so that all IDA accounts will reach their maximum

[[Page 14930]]

savings goal by the end of the demonstration project.

F. Participants' Use of IDA's

    (45) Can qualified business capitalization expenses include an 
existing business or a business in which the IDA holder is a part-owner 
or partner?
    Yes, qualified business capitalization expenses may include 
capitalization of an existing business and they may include 
capitalization of a business in which the IDA holder is a part-owner or 
partner. Applicants are reminded that they must have a business plan 
that meets the requirements of section 404(8)(C)(iv) of the AFIA and 
Part I, Section D (11)(C)(iv) of the Program Announcement.
    (46) Do vocational expenses, GED fees and general professional 
licenses count as post-secondary expenses? What about computers for 
people who need them to attend college?
    See the definitions in section 404 of the legislation, which are 
repeated in PART I, Section D (11) of the Program Announcement. General 
professional licenses and GED fees would not be considered post-
secondary expenses (GED is for high school equivalency, which is 
secondary, not post-secondary). Under the terms of the AFIA, post-
secondary educational expenses include (1) tuition and fees for 
enrollment or attendance of a student at an eligible educational 
institution (including post-secondary vocational education schools as 
defined in the Carl D. Perkins Vocational and Applied Technology 
Education Act); and (2) fees, books, supplies, and equipment required 
for courses of instruction at an eligible educational institution. 
Computers, including software would be considered qualified expenses as 
equipment.
    (47) Does a ``qualified first time homebuyer'' include a person 
with a lease-to-own provision in their lease?
    A ``lease-to-own'' provision is not an ownership interest. However, 
each lease should be carefully examined on a case-by-case basis to 
determine eligibility as a first-time homebuyer.
    (48) Describe the mechanics of withdrawal.
    Withdrawals from IDA's, which are limited to those for one or more 
Qualified Expenses or for an Emergency Withdrawal, require written 
approval of both the Project Participant and a Responsible Official of 
the project grantee. PART II Section G (3)(f) of the Program 
Announcement requires that the instrument establishing the Individual 
Development Account include a description of procedures governing the 
withdrawal of funds from the account. These procedures should identify 
the responsible official(s) of the grantee whose written approval will 
be required.
    (49) If a Project Participant withdraws all of his or her funds 
does the Participant have to close the account?
    If the Project Participant makes a withdrawal for one of the 
designated purposes, and sufficient time remains in the project, the 
participant may continue saving, subject to the overall matching 
restrictions, which limit total Federal grant fund contributions to 
$2000 per individual account over the course of the demonstration 
project. If the participant makes an emergency withdrawal they have up 
to 12 months to reimburse the account. Failing reimbursement, the 
grantee must close the account and return matching contributions and 
any accrued income to the Reserve Fund.
    (50) What if there is a qualified emergency before the six-month 
restriction; can the participant make such a withdrawal?
    No. Section 410(3)(d) of the AFIA states that no individual may 
withdraw funds from an IDA earlier than six months after the date on 
which the individual first deposits funds into the account. Under Sub-
Element II (b) of the Program Elements and Review Criteria in PART III 
of the Program Announcement applicants are encouraged, under ``aspect'' 
(7) of the project narrative, to include plans for crisis intervention 
activities that can avoid emergency withdrawals which might jeopardize 
continued participation in the project. If a participant nonetheless 
needs to make such a withdrawal for emergency purposes during the first 
six months of their account, they would have to withdraw from the 
program. Re-entry into the program would be at the discretion of the 
grantee.
    (51) Regarding emergency withdrawals, does ``withdrawal of only 
those funds deposited by participants'' include income generated by 
such deposits also?
    Yes.

G. TANF and IDA Projects

    (52) Can a TANF recipient use his or her benefit to contribute to 
an IDA?
    Only earned income can be used to contribute to an IDA, and 
therefore, only individuals with earnings can participate in an IDA 
program. As stated in the Program Announcement, as long as a 
participant's earned income for the period in which a deposit is made 
is greater than the deposit amount, the deposit will be considered to 
be made out of earned income.
    (53) Under AFIA, an individual's deposits, including any interest 
thereon, may be counted for the purpose of determining eligibility for 
any Federal or federally assisted program based on need, while TANF 
requires all funds (match, deposits and income) to be disregarded for 
determining eligibility for other means-tested programs. If an 
individual applies for a Federal means tested program and has an IDA 
account under TANF or AFIA, would those funds be taken into account in 
determining eligibility for the program?
    The total TANF IDA and the matching funds in the AFIA IDA would be 
disregarded; the State may if it chooses disregard the Project 
Participant's savings in the AFIA IDA.
    (54) Can Federal TANF and State MOE funds be used as the non-
Federal share or match for IDA's established under the Assets for 
Independence Act?
    No. A general principle of appropriations law holds that funds from 
one Federal program cannot be used as a non-Federal share or match for 
another Federal program unless authorized by statute. In the 
administration of TANF, Federal TANF funds can only be used as the non-
Federal share or match for the Department of Transportation's Access to 
Jobs program. This exception to the principle may be found at section 
3037(h)(2)(A)(ii) of the Transportation Equity Act for the 21st 
Century.
    State funds used as the non-Federal share or match under the Assets 
for Independence Act cannot be credited as MOE expenditures. This is 
because of the statutory provision at section 409(a)(7)(iv)(IV) of the 
Social Security Act, which excludes expenditures from MOE of any State 
funds ``expended as a condition of receiving Federal funds.'' 
Accordingly, State funds expended as the non-Federal share or match 
under the Assets for Independence Act cannot be counted as MOE under 
the TANF program.
    However, as noted above under Part I E of this Notice, where a 
State TANF program includes IDA's as an allowable activity where TANF 
funds can be used to match savings of TANF recipients in an IDA, TANF 
funds may be deposited as an additional matching contribution to 
savings in an AFI Act IDA held by a TANF recipient, once the AFI Act 
matching requirements for equal contributions of non-Federal and 
Federal grant funds have been satisfied.


[[Page 14931]]


    Dated: March 23, 1999.
Donald Sykes,
Director, Office of Community Services
[FR Doc. 99-7616 Filed 3-26-99; 8:45 am]
BILLING CODE 4184-01-P