Ahead of board meeting, Maryland 529 director details accounting issues in memo to lawmakers
The director of Maryland 529, which runs the state’s troubled college tuition savings program, offered new details late last week about the agency’s flawed new recordkeeping system in the wake of angry account holders descending on Annapolis to complain of the trust and its administrators.
Executive Director Anthony P. Savia also offered a seven-page memo in response to questions members of the House Appropriations and Ways and Means Committees volleyed his way at a Jan. 19 hearing. The memo includes a timeline and history detailing the problems plaguing the Maryland Prepaid College Trust, one of Maryland 529’s two college tuition plans.
The problem stems from a decision by the board in June 2021 to give account holders a sort of bonus on the money they had set aside for future college tuition — “earnings” that were previously unavailable to participants in the trust plan. Maryland 529 officials believed the “earnings” could be paid to account holders as part of a “simplified calculation.”
It apparently could not.
“That is what has led to this earnings calculation issue,” Savia wrote legislators in the memorandum dated Jan. 26.
The more than 30,000 accounts in the trust are affected, Savia wrote. More than 500 account holders have requested Maryland 529 to perform a manual review and recalculation of their accounts, but an automated resolution of the problem is apparently still months away — likely not until late 2023, he wrote.
Savia’s memorandum to the House Appropriations Committee also included two addenda with seemingly pertinent data, one of which gave examples of how some account holders’ balances were “erroneously” shown on the 2021 year-end statement, compared to those on the previous three years’ statements.
Several of the examples showed sample account holders’ balances more than doubling from the previous years — such as $35,695 growing to $86,537 and $41,280 jumping to $94,537 — though some balances showed as increasing by only a few thousand dollars. In 3 of 31 examples given, the “erroneous” balance shown was actually lower than the balance in the three preceding year’s statements.
Savia, who took over as executive director just last summer, explained the confusion to lawmakers by using an example he acknowledged as “an oversimplification of a very complex matter.” If your checking account shows that you have a balance of $100,000 instead of the $5,000 you really have, the $95,000 difference is a calculation error similar to that experienced by some account-holders, he has said.
Every Maryland 529 account holder’s situation is different, which further complicates the examination and recalculation of the accounts, and means that they must be manually reviewed, Savia said.
A second addendum to Savia’s memo showed that the overwhelming majority who have requested forms for a manual review so far, 171 account holders, are from Montgomery County. Of the 296 others, 58 account holders from Howard County have asked, followed by 47 in Anne Arundel County and 46 in Baltimore County.
In 2021, as a result of implementing a new recordkeeping system, developed by Maryland 529 and a then-new vendor, Intuition College Savings Solutions, and an attempt to calculate the bonus “earnings” for account-holders, balances shown online between November 9, 2021, and April 15, 2022, were “incorrect,” Savia wrote.
The changes they initiated was further complicated by a simultaneous attempt to correct another problem in earlier calculations made in some accounts by the trust that had been identified by legislative auditors in a scathing 2019 audit.
Some account holders’ balances jumped significantly as a result of the change and the calculation, causing many to believe that the sudden increase would allow them to send their children to private and more expensive out-of-state schools. Some account-holders committed to the more expensive colleges, only to then be informed by Maryland 529 last summer that a glitch in what apparently is a complex calculation might very well have inflated their account balances.
At one point, Maryland 529 froze the “earnings” on accounts, although officials said the holders’ principal — the amount they had deposited in the accounts — was accessible. Some account holders, however, have taken issue with that assertion.
The Maryland 529 changes sparked outrage from some parents, who have complained vociferously to lawmakers and other state officials, including twice in Annapolis this month – once in the Jan. 19 joint hearing of the House Appropriations and Ways and Means Committees, and the second in a Jan. 24 joint hearing before the Senate Budget and Taxation and Education, Energy and Environment committees.
The day after appearing before the House committees Jan. 19, Peter Tsirigotis abruptly submitted his resignation as Maryland 529’s chairman to the other board members, saying that the demands of the volunteer position were “too much for me to be able to commit to.”
On Tuesday, Savia testified before two Senate committees with Geoffrey F. Newman, the board vice chairman who stepped into Tsirigotis’s spot as acting chairman, offering some of the same history to the legislators as he did in the memo.
A group of account holders who had gathered for the hearing were having none of it. Many of them wore stickers that read, “Maryland 529 / Free Our Interest Now!!!”
Two parents testified before the Senate committees after Savia and Newman offered the agency explanations. Brian Savoie and Wendy Hall each explained to lawmakers the hardships that the Maryland 529 changes had caused them in their respective situations.
Following the hearing Sen. Mary L. Washington (D-Baltimore City), a member of the Education, Energy and Environment Committee, sent a letter to Attorney General Anthony G. Brown, asking him to initiate an investigation into the agency and its myriad problems.
The Prepaid College Trust was designed to pay for college tuition and fees, but not room and board, and other incidentals. It is a so-called “defined benefit plan” that allows account holders to lock in to a tuition rate at today’s rate, money that could be used years in the future to pay those costs, even if tuitions rise.
The second state-backed savings program, the College Investment Plan, is administered by an outside money manager, T. Rowe Price, and is unaffected by the accounting glitch, officials have said.
The Maryland 529 board is scheduled to meet virtually at 11 a.m. Monday.