A year later, what's changed for parents with Maryland 529 accounts?

Dec. 26—By Lia Russell — lrussell@baltsun.com

PUBLISHED:December 26, 2023 at 6:00 a.m.| UPDATED:December 26, 2023 at 9:59 a.m.

It's been a year since 400 Maryland parents logged into a scheduled virtual meeting, hoping to hear answers from the board members who oversaw a small independent state agency financially responsible for their children's educational futures.

Starting in spring 2022, hundreds of account holders with the Maryland 529 Prepaid College Trust sought answers to why they couldn't access the money they invested tax-free for their kids' college tuition. Others' accounts reflected thousands of dollars less than what they were valued at. In December 2021, the 20-person board overseeing the agency voted in a closed meeting to grant some legacy account holders a 6% annual interest rate, then later reneged.

The board called a virtual emergency meeting Dec. 19, 2022. Members immediately went into closed session, leaving hundreds of observers in the dark with only one another to talk to.

That was when a group of parents decided to advocate for their state delegates and senators to intervene, organizing via Facebook to travel to the State House to testify and meet with lawmakers. The General Assembly passed legislation in April dissolving the board and transferring control of the agency to the State Treasurer's office, which temporarily restored account holders' interest rates earlier this year.

But even with the structural changes, three parents who were involved in the legislative fight say there's been little accountability and have vowed to return to Annapolis in January, when the new General Assembly session begins.

"The fact that it took this massive advocacy and lobbying effort when we were right all along is really something that needs to be looked at," said Lisa Getter, a Rockville parent.

"The state only wants to look forward on this. They want to get parents paid and move on," said Brian Savoie, a Silver Spring parent. "I understand the desire to do that, but if you're just looking forward, how are you going to prevent something like this from happening again?"

Heather Boley, a Calvert County resident who organized parents alongside Getter and Savoie, said there should be "some sort of repercussion or consequences."

Other problems like potential tax penalties still persist, and parents say communication is sparse and often confusing. Getter and Savoie worry that a similar issue could happen again to the state's other 36-odd independent state agencies and boards. The treasurer's office, led by Dereck Davis, is soliciting people to file claims through Dec. 31 to recoup their lost earnings in a four-step process.

Davis, a Democrat, defended his office in an interview earlier this month with The Baltimore Sun.

"There are some things we'll never know the answer to or be able to explain" due to the office's poor record-keeping, he said. "A number of people involved have moved on, the principals are gone. That office now doesn't look like it did [before]. No historical documentation exists to show how this happened. I'm not sure how much we can do with what we have, and I'm not sure how productive [a legislative investigation] would be. It's something we'll just have to live with."

Getter pointed out that an earlier bill that would have included a work group composed of parents and officials to determine the scope and origin of the interest rate freeze was scrapped in favor of the legislation that eventually passed the General Assembly.

"Sometimes fixing the problem isn't enough," she said. "As a taxpayer, I want to know why this happened and that it couldn't happen again."

Maryland 529, which began in 1997 as a vehicle to help residents save for their children's college education, offers two kinds of programs. The prepaid trust, the program under fire, allowed investors to purchase semester credits at rates set at when they opened their accounts and the state would pay the difference in inflation when the child matriculated. The College Investment Program, the other part of Maryland 529, operates like a 401(k) and is overseen by Baltimore investment firm T. Rowe Price. The prepaid trust oversees some $1.2 billion in assets, according to financial documents. The investment program has not reported any problems.

For years, Maryland 529 operated with few employees or resources and little oversight, even as the number of accounts grew to an unmanageable number, according to a Sun investigation. Former officials, like its longtime executive director and chief financial officer, either declined to comment or could not be reached for comment.

Davis said upon review that his office found "no criminality," but the agency's operations were "unlike anything I'd ever seen before." A 2019 state audit criticized the agency for poor record-keeping and lax oversight.

Now, the treasurer is preparing to close out the prepaid trust to new investors after June, by which point interest rates will have reset to zero. People will have to transfer their accounts to the investment plan if they want to continue earning interest.

But even then, around 3,000 parents who have more than one account risk a penalty because the IRS allows only one account every 12 months to roll over without incurring a fee. Some 150 people will also be federally taxed for the money they receive via the claims process, according to Shareese Churchill, Davis' spokesperson.

Members of Maryland's congressional delegation, led by U.S. Rep. Jamie Raskin, a Democrat, are trying to establish an exception for affected parents, according to a letter they sent the IRS in October.

Raskin's office did not respond to a request for comment.

Brian Krantz, a Bethesda resident, faces either a $20,000 federal penalty if he rolls over more than one of his two kids' 16 accounts, or losing money if he opts to keep the accounts in the prepaid trust. Interest rates for the trust will reset to zero in early 2024, according to Davis.

Krantz said he was "thankful" Davis' office was now overseeing the agency, though there was "tons of room for improvement."

"Their outreach is probably the worst of what they're doing," he said. "They communicate a decent amount of the time, but sometimes it's really hard to decipher what they're actually saying. Things can be worded ambiguously. At this point, the vast majority of regular people just want to know how to get the money they're entitled to, and want to know what they need to do."

Davis said his office had sent out three postcards and published radio ads to reach all account holders reminding them of the Dec. 31 deadline, regardless of whether they are eligible to file a claim.

The treasurer estimated that Maryland 529 will have to pay out "somewhere in the ballpark" of $1 billion to claimants, from the assets in the trust, after the claims process concludes.

The money people receive from their claims process will be issued to them via check, Davis said.

In addition, some leadership positions will be "restructured," according to Davis. The agency is now under the auspices of the treasurer's office, which has its own accounting, budgeting, and legal divisions. Katina Conn, the agency's chief financial officer, stepped down from her position Sept. 19 after joining the transition team in May. The team was responsible for moving over the prepaid trust to the treasurer's office. Her position may not be filled, Davis said, because the treasurer's office already has a chief financial officer.

Deputy Treasurer Anthony Savia, who previously led the agency as executive director from September 2022, resigned from the office on Nov. 30. The position will be posted for hiring in the new year, Churchill said.

Savia did not respond to a request for comment. He had been a state employee for over 30 years and was eligible for retirement, Davis said.

"It wasn't a forced resignation or anything like that," Davis said of Savia's retirement. "If I intended to do that, I would've made him do that June 1."

Lawmakers criticized Savia and former Board Chair Peter Tsirigotis during a January 2023 hearing for not acting quickly to address parents' concerns about their accounts. Tsirigotis resigned the day after.

Boley, Savoie and Getter, who previously criticized Maryland 529 officials, said they felt Davis was doing a better job than his predecessors, and that Savia was scapegoated for problems that predated his time there.

"Somebody needed to be the grown-up in the room and say, 'Wait what went wrong here?'" Getter said.

Davis previously said the issues with Maryland 529 escaped his attention at first because in addition to serving on the former board, he also sat on myriad others, like the Board of Public Works and Board of Revenue Estimates.

"We're confident that we have a sound team in place, with any oversight that's needed," he said Monday, referring to his office.

Savoie said the lack of institutional knowledge and history of officials staying short periods of time at Maryland 529 hampered the state's ability to hold it accountable.

Savoie said he was happy that families will receive their money, referring to the reinstating of the 6% annual interest rate, and that his group had "accomplished quite a lot," though there was still work to be done.

"There's been a lot of confusion from the start about how the claims is going to work, and account holder education has been left to the Facebook group," he said. "It's effectively a continuation of before."

Savoie said he won't be satisfied until the claims process is over, at the least, "or until I stop seeing notices in the Facebook group about how the state is continuing to screw things up."

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