The newest set of leaders overseeing Maryland’s 529 fund showed up for an appearance before a joint state Senate committee hearing in Annapolis on Wednesday afternoon. However, that doesn’t necessarily mean what they had to say was well received by lawmakers or parents struggling to access funds.
After a blistering debacle of a hearing before a house of delegates committee last week, the chair of the board stepped down and in his place, a new, interim chair sat at the table for a grilling by lawmakers.
Lawmakers did walk away with what appeared to be a little clarity as to what the problem was going on with the college savings plan.
The state’s 529 college savings plan, which is a state-sponsored investment plan that enables users to save money for a beneficiary and pay for education expenses, had an error that left hundreds of people unable to take money out of their accounts, due to an interest calculation glitch within the program.
Geoff Newman, the interim chair of the Maryland 529 Plan, said that the board is “confident that the calculation issue has been resolved.”
He also said the error goes back to a change in terms made by the board in June of 2021 and impacted two calculations for parents who decided to pay into the Prepaid College Trust, which lets parents freeze tuition at state schools at the time the accounts are created.
The calculation mishaps have mostly impacted families whose kids ended up not going to any of the state’s public universities, and instead used money for a private or out of state college, or those who were given the wrong minimum benefit value.
Anthony Savia, executive director of Maryland 529 Fund, said the mishap began when the 529 fund had to switch software programs. Those who invested in a traditional 529 plan, which can be used at any school, were not affected.
At the same time, the investments made by the traditional 529 plan grew substantially, leading the fund to start offering a 6% “interest” on earnings to Prepaid College Trust account holders, even though what they were enrolled in was actually a defined benefits plan. Savia then compared what happened to a bank error that worked against families.
“In total, incorrect values were shown for approximately 4-6 months between November 2021 and April 2022,” Savia said. “In addition to correcting the calculation issue, our agency needs to carefully explain to our account holders that there was in fact an error and not an accurate calculation shown during that time.”
Though he cautioned that he was using an overly simplistic analogy, he compared it to a bank statement that might show you have $100,000 in your account, when you really have only $5,000.
“While it would be great to have, it’s not an accurate accounting of how much money you actually have in your checking account,” he said.
Figuring out just how much each family actually has is also apparently more complex than just using a computer program to recalculate things correctly. In fact, a private team of 750 accountants are recalculating each account by hand.
Some families, who have been told what their accounts are now worth, have been sounding off on a Facebook page, disputing the new figures and questioning the accuracy of what’s been told to them.
“Now they’re saying ‘oopsie, we made a mistake, nevermind,’” said Wendy Hall, one account holder who testified before the senate panels. “Meanwhile … a lot of us had made decisions, very important decisions” based on what they had been told by the 529 panel.
Another account holder, Brian Savoie, said parents shouldn’t have to pay for making decisions based on what they were told was in their accounts.
“The families behind you have been receiving revised calculations, this decrease that they described, and the families are not going to accept those revised calculations,” Savoie said. “They paid $50,000 for a crisis communications firm, but I haven’t heard an offer of $1 to make these families whole.”
He said the account holders impacted by this are on the losing end of an error worth between $18 million and $122 million.
“I’m looking at my account’s value being slashed by $20,000,” Savoie said. “We need to curtail Maryland 529’s ability to claw back any earnings due to the calculation error and make account holders whole for the extraordinary means they undertook to pay for college during the freeze on the payment of earnings.”
He said the 529 fund, which he says is overfunded by more than $355 million, has the ability to do that. During their questioning, some lawmakers seemed sympathetic to the parents put in a financial bind because of the problems.
“I think what’s most concerning is indifference to the fact that people have saved for 20 years, people had made plans,” said Sen. Mary Washington, addressing the members of the 529 board.
And the bank error analogy made earlier didn’t carry a lot of weight with her since it existed as long as it did. “These discretions, or the belief that these parents made a … smart investment on behalf of the future of their children, it’s not their fault that you were not able to correctly calculate that.”