Maryland is closer to overhauling its troubled college savings agency after Gov. Wes Moore (D) signed legislation Monday to transfer control to the state’s treasurer.
The takeover, which the Maryland General Assembly approved earlier this month, is the culmination of months of lobbying by parents who have been battling with the Maryland 529 agency over the earnings on their prepaid tuition accounts.
The agency suspended earnings on approximately 31,000 prepaid accounts last summer, claiming a calculation error produced inaccurate balances. Account holders dispute that claim and accuse the agency of breaching a contract that left hundreds of families scrambling to pay tuition.
Maryland 529 also offers a traditional investment college savings plan. It was not affected by the calculation issue.
“In the weeks leading up to the transfer, the State Treasurer’s Office will work diligently with staff and account holders to ensure a seamless and smooth transition,” said Shareese Churchill, a spokesperson for the Treasurer’s office.
But some parents remain skeptical that the changes will make them whole.
“I feel cautiously optimistic,” said Lisa Getter Peterson, an account holder who has helped organize parents on the issue. “I hope that the treasurer and his staff, who have been very responsive, unlike the 529 board, will listen to us, read our contracts, understand where we’re coming from and honor them.”
During hearings in recent months, Maryland lawmakers criticized the Maryland 529 agency’s poor communication with families, dismissiveness of the financial harm and its inability to meet self-imposed deadlines to resolve the matter.
Under the legislation, State Treasurer Dereck Davis must appoint a deputy treasurer to administer the program and decide the rate of return on prepaid accounts. His office will also have the authority to resolve claims brought against the trust by account holders who are still contending with the earnings issue.
The Maryland Prepaid College Trust, unlike the state’s traditional 529 plan, let families lock in future tuition payments by purchasing semester credits when they opened an account. For years, the agency invested the money it received from families but distributed earnings inequitably, according to a 2019 state audit.
To rectify the disparity, the Maryland 529 board told families in June 2021 that it would begin applying earnings the same way for rollovers, refunds and minimum benefits. Because of excess funds in the trust, account holders would earn 6 percent on balances held before Oct. 31, 2021, the board said.
Eric Marshall contacted Maryland 529 that summer to make sure he correctly understood the planned earnings increase would be applied retroactively.
In emails reviewed by The Washington Post, Maryland 529 Finance Director Janaki Kannan confirmed in August 2021 that the 6 percent increase would “begin from the date of the contributions to the plan.”
Marshall, who had contributed $19,000 in 2002 for his son and $25,000 a year later for his daughter, believed the year-end 2021 statement he received valuing the prepaid plans at a total of $91,000 made sense. At that point, half the benefits had already been used to send his children to Towson University and the University of Maryland.
“All three of the emails were crystal clear that it was 6 percent from the beginning, and they were from multiple people,” Marshall said. “I had no reason to doubt them.”
Kirk Litton said he also believed the new earnings rate was appropriate based on the recent performance of the trust and the earnings on his daughter’s account before the change was enacted.
With his daughter headed to Clemson University in South Carolina, Litton checked the rollover value of her prepaid account in September 2021 and learned it had earned $53,000 in earnings after 15 years in the trust. He rolled over her account into a traditional 529 account but kept the prepaid plans for his two other children.
Last April, Maryland 529 leaders said a calculation error had incorrectly inflated the values of prepaid plans. In some cases, account balances more than doubled from previous years, jumping from $35,695 to $86,537 for instance, according to testimony Maryland 529 Executive Director Anthony Savia gave the Maryland House Appropriations Committee.
Families who requested reviews of their accounts received new calculations that in some cases slashed their values in half. Marshall’s $91,000 balance was revised to $40,000, he said.
While Savia and the board insisted the families didn’t understand their contracts, account holders insist Maryland 529 administrators are lying to cover up sloppy management of the trust.
An earlier version of the legislation had called for a working group to investigate the dispute, but families will now have to wait for a state audit to learn more. State auditors were already set to examine whether the agency had addressed management problems raised in a 2019 report, and said the latest calculation issue would also be part of the review. Brian Tanen, director of compliance and performance at Maryland’s Office of Legislative Audits, said the examination is ongoing.
The legislation gives the treasurer great latitude in setting a rate of return retroactively and going forward, which worries some parents. Rather than honoring the 6 percent rate, the treasurer has the discretion to select a lower rate and apply it for a short amount of time based on what the trust can afford. If account holders are dissatisfied with the proposed settlement, they can take legal action.
Earlier this month, the state’s Deputy Treasurer for Public Policy Laura Atas told lawmakers her office will work to create a claims process by the summer and get payments out the door in time for the fall semester.
The treasurer’s office said Monday it will post updates about its work and encouraged people to submit general comments or inquiries to MD529@treasurer.state.md.us.