The IRS was told Wednesday that proposed rules could stifle the number of participants in the coming 529-like disability savings plans.

State officials in line to run the plans warned at an Internal Revenue Service hearing the regulations could make it unduly hard for individuals to sign up for the programs and unnecessarily costly to administer the savings vehicles.

Popularly known as the ABLE law, the Stephen Beck Jr. Achieving a Better Life Experience Act was designed to spur state programs that would give relatives and friends the ability to help pay for a disabled individual’s long-term needs the way the 529 college program helps parents save for a college education.

A key benefit of ABLE is it provides financial support for participants while keeping them eligible for Supplemental Security and other government aid by not being counted against asset limits for eligibility.

Close to three dozen states have passed legislation to set up the plans. The first are expected to be in operation by the middle of next year.

Kathleen McGrath, who testified on behalf of the National Association of State Treasurers’ College Savings Plans Network, said the states are being asked to set up the programs in the dark: No one knows how many people will participate or what the costs will be.

State offices that administer 529 plans would usually operate ABLE as well.

With sizeable fixed costs, the programs could be hampered by the low $14,000 maximum that can be put into an account (with the same limit for yearly contributions), as well as the possibility few of the disabled will opt to participate.

Administrative expenses are likely be higher than the 529 programs because of monthly reports that have to be sent to the Social Security Administration, the need to create a computer program to kick out contributions above the annual limit, and the need to ensure the person opening the account has the authority to do so.

In addition in the rules currently under consideration by the IRS, there is a need for administrators to certify persons are eligible to participate in ABLE (a task they don’t have to perform with 529 plans), but state officials and disabled advocates are hoping people will be allowed to self-certify

She said the proposals leave open the possibility administrators would have to keep records on whether participants are spending the money in ways that keeps the tax benefits and asset eligibility for government aid. She and others are asking the IRS to reword the language so that potential is eliminated.

“The Social Security Administration, which administers SSI, can get that information from the participants directly without the states being the middlemen,” she said.

But if the IRS won’t give that responsibility to Social Security, she said the agency should allow participants to verify they are spending the money correctly.

Another expense the states hope to eliminate is the proposed mandate for them to get tax identification number of all persons making contributions.

“So if grandma makes a $25 contribution for a birthday present, we’d have to get a record of that. That’s not a requirement with 529 [plans],” said McGrath.

Most states aren’t spending tax dollars on the programs, meaning they will have to fund themselves through fees.

Scott Gates, the director of the college 529 savings program in Kansas, said his state may not be able to get enough in fees from an estimated 5,000 to 10,000 participants to operate an ABLE plan.

“We’re really worried how we can pull this off,” Gates said.

If the proposed rules take effect, he said the only way smaller states might be able to afford to offer their residents ABLE is to form consortiums with other states.