http://www.forbes.com/feeds/ap/2009/03/24/ap6207385.htmlThe board that oversees Alabama's prepaid college tuition plan agreed Tuesday to keep paying tuition, but not to allow new children to enroll in the financially ailing program.
The board of the Prepaid Affordable College Tuition Plan also agreed to seek help from the state Legislature to shore up its shrinking assets, which are now less than half the money it needs to pay future tuition obligations. The plan has more than 48,000 participants, who range from newborns to current college students.
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Really interesting dynamics in Alabama. The three person committee set up to address this issue is made up of three individuals running for governor.
As I read through the plan documents, I observed that the actuary in the Sept. 2007 report said that his assumptions on plan viability was made based upon the assumptions provided by the investment manager. The investment manager said that the portfolio was constructed to meet the obligations of the plan (paying every increasing tuition). It was not stated as such, but it was obviously structured without regard to risk. The investment house was instructed by the Board to structure investments to meet the needs of the plan (to continue to provide funds for tuition). The cost to participate in the plan was set based upon these rosy projections. It is like a round robin with no one held accountable.
During the election of Treasurer, Kay Ivey's (the current Treasurer) mentioned that PACT viability was a concern. She indicated that it was not.
Their meeting really solved nothing. They are going to the general legislature with hat in hand to try to bridge being underfunded. The Lt. Gov., who is one of the three, has made assurances that this approach will be successful. Interesting that he can speak for the whole legislature like that.
The problem with this plan and other prepay plans across the country demonstrates the increasing problem for middle income families in regards to paying for college. If a pooled approach that should have access to sophisticated portfolio techniques and vast economies of scale cannot match tuition inflation, what does that mean for the an individual trying to save for college in a 529?
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