Baltimore Sun

Senate advances bill to move Maryland 529

Legislatio­n would end prepaid trust program, abolish board and move college savings agency to state treasurer’s office

- By Lia Russell

A Senate bill to move a much-criticized state college savings agency under the auspices of State Treasurer Dereck Davis received its first hearing Wednesday, with lawmakers pledging to act before the end of the legislativ­e session to strengthen oversight of Maryland 529.

The independen­t agency, which allows parents to save money tax-free for their children’s education, came under scrutiny in the last year after it suspended access to interest payments for account holders in its Maryland Prepaid College Trust. Parents reported losses in anticipate­d payouts and scrambled to cover tuition.

Agency officials said the debacle is the result of an interest calculatio­n error during a botched transition to a new contract program manager. Parents dispute this, saying the Maryland 529 board reneged on a contract clause that gave account holders a 6% compounded monthly interest rate.

The problem prompted Sen. Joanne Benson, a Democrat from Prince George’s County, and Del. Cathi Forbes, a Democrat from Baltimore County, to introduce bills that would end the prepaid trust program by 2025, abolish the 529 board and move the organizati­on into Davis’ office by June 1.

The Senate Budget and Taxation Committee discussed Benson’s Senate Bill 959 on Wednesday. Davis, who is an ex officio member of the Maryland 529 board, testified in support. A House Appropriat­ions Committee hearing for House Bill 1290 is scheduled for Tuesday.

“As citizens of Maryland, we must continue to uphold the values of integrity and faith with regards to our institutio­ns,” Benson said in her opening remarks. “Currently, we do not see these values being upheld in this program.”

Under the bill, Davis would assume fiduciary duties and administer the Maryland 529 prepaid trust program.

Benson’s bill would set aside an additional $336,100 for fiscal year 2024, and $146,900 in fiscal year 2025 to eventually phase out the prepaid trust, according to a fiscal analysis.

It also would require the creation of a work group of Maryland 529 staff, affected account holders and state employees, which would prepare a report with recommenda­tions on how to wind down the plan to the General Assembly by June 1, 2024.

Davis called last month for control over the organizati­on, pointing out that other states with 529 plans house those agencies in their state treasurers’ offices.

He joined the Maryland 529 board shortly after assuming office in December 2021 and has been one of the more active public officials on that body, according to his attendance record in meeting minutes.

Regarding the agency’s difficulti­es, Davis said Wednesday that his time on the board was limited to helping set policy and he did not play a role in daily operations.

“Once we found out about it, we started asking questions and were given different dates and times as to when it would be solved,” Davis said. “Like any of us, you figure a calculatio­n error is just that. The dates of when it would be resolved kept moving.”

Davis asked for additional funds to hire a deputy director, as well as contract management staff; customer service, informatio­n technology and human resource personnel; and legal and marketing staff. He also sought funds for additional IT staff and a consultant to review past claims and handle communicat­ions.

Asked if he believed the law would allow him to use the trust’s $355 million surplus to make parents whole, Davis deferred to legislator­s, saying that was “above his pay grade.”

“[Lawmakers] are looking at this as they are creating the policy, and we are the instrument for implementa­tion,” Davis said of his office’s role in fixing the prepaid trust issues.

As a gaggle of parents formed outside the hearing, he addressed them: “We will be as communicat­ive as we can with you all, and certainly with the legislatur­e, over these final ... however long it takes to get there.”

Neither bill offers to repay account holders for their lost earnings, something parents who testified requested. Some also called on the state to enforce a June 2021 board decision that allowed accounts opened before Nov. 1, 2021, to earn a 6% compounded monthly interest rate.

“You need to help us get refunded,” Victoria Sansone told lawmakers, breaking down in tears as she explained she soon would have four children in college and had no idea how much money her prepaid accounts would yield for tuition.

Since the accounts issue became public last fall, Maryland 529 has taken a number of steps to bolster itself.

The agency retained law firm Nelson Mullins Riley and Scarboroug­h in September and contracted with its Assureg subsidiari­es to handle its call center services the same month, according to a contract obtained by The Baltimore Sun.

It hired Pressley Media Group in January for $50,000 to handle crisis communicat­ions.

According to the Assureg contract, which the Maryland Attorney General’s Office signed off on, the regulatory compliance consulting division of Nelson Mullins provides Maryland 529 with “outsourced call support services” for parents who call for help with their prepaid trust accounts. Attorneys handle calls from account holders, collect data and assist callers with complaint intake forms, and all informatio­n is subject to attorney-client privilege.

Invoices obtained via a records request show Assureg billed the state agency around $38,000 for call center services between Oct. 1 and Dec. 31.

Nelson Mullins invoiced Maryland 529 for $332,037 during that time.

Nelson Mullins did not respond to a request for comment. Maryland 529 referred a request for comment to the attorney general’s office.

Aleithea Warmack, a spokespers­on for the attorney general, said the state retained the law firm on an emergency basis, which is standard for “matters involving threatened or pending legal claims against an agency.”

“If they were serious about helping us, your first instinct shouldn’t be to hire big lawyers and treat [parents] like adversarie­s,” said Lisa Getter, a Rockville parent with a Maryland 529 prepaid trust account. “This is not how state government should work.”

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