Lawmakers are moving forward with a plan to abolish the troubled Maryland 529 board and put the state’s treasurer in charge of a claims settlement process for holders of pre-paid college trust funds.
Deputy Comptroller Laura Atas said Thursday that an amended bill moving through the General Assembly would transfer the fiduciary responsibility for the $1.1 billion fund to the Treasurer’s Office beginning June 1.
Maryland offers two 529 college savings programs (named for the section of IRS code that makes them possible). The Maryland Prepaid College Trust allows parents to lock in tuition rates for in-state schools by purchasing semester credits when children are young.
Last year, the 529 board suspended interest payments on the pre-paid tuition accounts after an accounting glitch surfaced when the agency switched from one outside vendor to another and family account balances could not be resolved.
The College Investment Plan is administered by an outside money manager and functions similar to a 401(k). The investment plan is unaffected by the software glitch.
Maryland is one of a small number of states to operate a pre-paid trust plan.
Amendments under consideration by lawmakers now would prohibit the creation of any new pre-paid trust accounts after June 1.
The amended bill would also allow pre-paid plan accounts to be rolled over into other accounts under the 529 program through a claims settlement process.
The treasurer’s office is charged with settling up a tiered claims settlement process, with priority being given to account holders who sought reimbursements since the accounts were frozen last summer or who will need a disbursement for the fall semester.
The deadline to file claims will be Dec. 31.
The treasurer’s office will consult with actuaries and financial advisors to decide what earnings rate should be applied to the accounts — balancing the assets of the trust and fair payments to account holders.
Issues with the pre-paid trust emerged when the Maryland 529 board sent year-end statements in 2021 to the more than 30,000 accounts in the plan. The year-end balances included in those statements erroneously reflected the retroactive application of an earnings rate that the board had intended to be a prospective rate, Atas said.
In documents submitted to lawmakers earlier this legislative session, the Maryland 529 board included a sampling of how 31 different accounts were reflected on the year-end statement. Some of the examples showed 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.
All 30,000-plus account holders will be notified about changes to the accounts by the treasurer’s office.
Last month, Treasurer Dereck E. Davis said his office was up to the task of taking over the program, but asked lawmakers for patience during the transition.
Two Senate committees — Budget & Taxation and Education, Energy & the Environment — gave unanimous approval to the far-reaching amendments Thursday afternoon. The bill is expected to pass both the Senate and House of Delegates before the General Assembly’s 90-day session adjourns on Monday.
William F. Zorzi contributed to this report.