Reply to MD 529 pre paid tuition debacle

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[quote=Anonymous]This is a long read, but posting for the DCUM readers who may be impacted by the pre-paid tuition issue.  One of the parents in the facebook group summarized some of the major issues

Setting the Record Straight on the Maryland 529 Fiasco
 The 529 board and its executives have claimed the reason account holders do not have access to money they were promised is due to an interest rate calculation error that they have now fixed. That is incorrect. The problem is an investment earnings issue and a breach of contract.
 The original contract we signed stated that funds in our accounts could be rolled over to another qualifying plan, and if our contract had been in existence for at least 3 years, the rollover would include "100 percent of the investment earnings"
 For decades, the Prepaid College Trust paid accountholders who wanted to roll over their
money their principal balances plus earnings, often called trust returns. Disclosures from 2016 through 2021 define a trust return: “the since inception rate of return for the
Prepaid College Trust. The date of inception is December 31, 1998, and the since inception rate of return is updated quarterly by the Prepaid College Trust’s investment
advisor. Trust Returns are used to calculate Rollover Distributions and refunds"
 Under Article IX of our contracts, while the board could amend the terms, "the Board will not retroactively modify existing Contract provisions in a manner adverse to
you or your Beneficiary"  Yet the board has done just that. First, when it froze rollovers and limited access to our accounts in 2022. And then, according to the manual
calculations distributed to account holders in 2023, it changed the definition of investment earnings to interest earnings, which has a significant and detrimental negative
impact on the value of our accounts.
 Account holders received annual statements on December 31, 2021, that included the “total FAFSA reporting value,” defined as the “refund value” of our accounts. This total tracked with the since inception rate of return as described above, which was about 6 percent. Those documents state that “after 60 days the information will be considered correct and binding for the account.” It is a crime to use false information on FAFSA
forms.
 Parents relied on those 2021 documents, and other corroboration from the trust, to make financial decisions. This was not at all like a banking error that mistakenly inflates the amount you have in your checking account, as Maryland 529 Executive Director Anthony Savia claimed to the state Senate. The FAFSA amounts made mathematical
sense in 2021 and they make sense today. The 529 board has never sent written communications to account holders that the FAFSA numbers were wrong, as required by
our contracts. “The agency did not communicate with the account holders the way they should have,” Savia acknowledged at the Jan. 19 House appropriations briefing.
 Board chairman Peter Tsirigotis, a Greenberg Traurig financial services lawyer, told the House committee that the board’s fiduciary duty was “to the plan.” (He resigned the next day) However, Maryland state law dictates that the 529 board’s fiduciary duty is “solely in the interest of the participants,” a fact that was discussed by board trustees on several occasions in recent years, a review of the board’s minutes show.
 The Prepaid College trust lured account holders into the trust through inaccurate and misleading marketing. For years, it said tuition rates would increase by 6 or 7 percent
every year, even though it knew actual increases were less than half that. “And don’t worry, if Tuition does not rise as projected, you are eligible for a Minimum Benefit equal
to the payments you make plus a reasonable rate of return,” its 2011 brochures stated. This, again, flies in the face of testimony from executive director Savia, who suggested that parents did not know what they were purchasing. “They were never set up as interest
accounts,” he said to the House appropriations committee.
 Executive Director Tony Savia presented a misleading chart to lawmakers in a memo in advance of the Jan. 30 board meeting. The chart purports to show “inflated” account values, but fails to point out that the values include the investment earnings that would be given in a refund, as the fine print on those 2021 FAFSA valuations state. The previous amounts were simply an accounting of the account principal, but not a refund value.  
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