The following is an op-ed piece from Delegates Kathy Szeliga and Ryan Nawrocki.
During the 2023 Legislative Session, constituents regularly reached out to us on many hot-button issues to share their concerns, opinions, and frustrations – but nothing took up more time and energy than those parents whose Maryland 529 Savings Account Plans became seemingly useless. Many parents were stranded when it came time to access their funds for college this year as the agency struggled to make payments to some families because of an interest rate calculation error. Parents had complained that they were unable to access interest earned in the Prepaid College Trust portion of the 529 program, which is named for a section of the federal tax code. Plan administrators said they froze access to the interest on the accounts because of an accounting glitch that occurred when they switched from one outside vendor to another. Being a non-partisan issue, the Maryland General Assembly took a united front in tackling this egregious error and ensuring accountability.
First, a briefing before the legislature took place in January, resulting in the Chair’s abrupt resignation from the 529 Board. Since the briefing left many unanswered questions, emergency legislation was introduced. SB 475 aimed to establish a workgroup to identify policies, procedures, and practices that led to Maryland 529 account holders’ issues as well as develop and make recommendations for improvements. This did not satisfy the urgency of the affected Maryland 529 account holders, so an even stronger piece of legislation was introduced to determine answers more quickly. SB959 (cross-filed with HB1290) was unanimously passed in the Senate and House and signed into law by Governor Moore. The legislation abolished and repealed the Maryland 529 Board, transferring to the Office of the State Treasurer the responsibility for administering the Maryland 529 Program, including the Maryland Prepaid College Trust, the Maryland College Investment Plan, the Maryland Broker-Dealer College Investment Plan, and the Maryland ABLE Program.
During the hearing on SB959, the Executive Director of the Maryland 529, Anthony Savia, submitted the only unfavorable testimony against the bill. He stated, “I would submit that abolishing the Maryland 529 Board that oversees the agency and moving all reporting responsibilities under the Treasurer could result in less oversight for the Maryland 529 Programs than is currently in place. The Maryland State Treasurer, along with the Comptroller, the Secretary of the Department of Disabilities, the Secretary of Higher Education, and the Chancellor of the University System, have been Board members since the inception of the agency’s college savings and ABLE programs.” The State Treasurer, Dereck E. Davis, assumed control of the agency on June 1st, and he and his staff worked seven days a week to address this debacle. In a statement to the General Assembly, Treasurer Davis said, “Unfortunately, as soon as the State Treasurer’s Office started to investigate what transpired, they discovered that they were peeling an onion – layers upon layers of data issues, miscommunication, and mismanagement.” Interestingly, Treasurer Davis appointed Anthony Savia as the new Deputy Director of the 529 Plans. Treasurer Davis’ office said that Savia’s responsibilities will be similar to when he was Executive Director but made clear the accountability will start and end with the state treasurer.
This week, Treasurer Davis announced that he will apply 6% earnings retroactive to the date of contribution for Maryland Prepaid College Trust (MPCT) accounts that were open and active on November 1, 2021. This is the news that account holders have been waiting for since before the State Treasurer’s Office assumed responsibility. This announcement provides certainty to account holders that they will get earnings over and above what they are currently receiving. Unlike tax refund checks that are issued immediately, it will take some time for account holders to access those earnings. To make sure that the 6% retroactive earnings rate decision is affordable, beginning at some point in 2024, contributions and account balances will no longer accrue earnings. The 6% retroactive earnings rate decision only applies to open and active accounts in the IT system on November 1, 2021. For contributions made on or after November 1, 2021, the annual earnings rate will be a rate equal to the 10-year Treasury note, compounded monthly. As with the retroactive rate, this rate will apply until the date that new earnings are cut off (TBD, but no later than July 1, 2024), benefits are withdrawn, or a contract ends, whichever occurs first.
Beginning on a date no later than July 1, 2024, all contributions and all balances in an account will earn zero percent interest. This means that account holders will keep the earnings they have accrued before that date but will not accrue any additional earnings. There is no guarantee that all account holders will receive the value that they expected based on their 2021 year-end statements, but Treasurer Davis believes that this decision will get most individuals close to that amount. Some account holders may even receive more than they had expected. At least 60 days prior to the date the earnings rate is set to zero, account holders will be notified of the effective date of that change. Account holders who do not wish to be bound by these new contract terms may request a rollover to another qualified state tuition program.
Account holders who need to access their earnings to make payments for the fall 2023 semester should request a manual calculation. Treasurer Davis has proactively asked the accountants to prepare manual calculations for the approximately 11,000 accounts that are anticipated to have fall payments. The rebranding as a defined benefit plan will bring MPCT in line with most other states that operate similar plans and will bring the plan back to its original framing by the legislature. The State Treasurer’s goal is that moving forward, the benefit that MPCT pays out will be the defined benefit of prepaid tuition rather than a benefit that is driven by earnings on contributions. Account holders can continue to contact [email protected] for assistance in directing questions to MPCT and its vendors. We will continue to support the reform of this program and higher accountability and oversight of this newly established MPCT