Update:

Some Maryland 529 account holders will have a retroactive 6% earnings rate applied to their prepaid college savings account, according to a memo from Maryland State Treasurer Dereck Davis. This will apply to account holders who contributed before November 1, 2021.

“On behalf of the State, I acknowledge that account holders have already been asked to be patient for too long,” Davis said in the memo. “The feedback from account holders has helped to shape the changes that I am making to improve communication and increase transparency.”

The decision comes after a “calculation error” led to Maryland 529 freezing additional earnings for hundreds of prepaid college savings accounts. The fiasco led to shifting responsibilities of the Maryland 529 accounts to the state treasurer in March.

“Now that the decision has been made, swift action is required,” Brian Savoie, a parent and organizer of Free Our Interest NOW, Maryland529!!!, said in a statement. “In less than 20 days, the vast majority of tuition bills will be due. We have already waited too long for nothing more than what was in our contracts.”

The memo details a four-phase plan to address policy changes, including updating accounts with the new earnings values and implementing a claims process. The plan notes that retroactive payments may take some time to appear in accounts, but they are prioritizing families with students entering and returning to college this upcoming fall.

“I am optimistic that with continued patience, account holders will have their faith restored in this important public program,” Davis said in the memo. “Under my watchful eye, performance will improve. There is no acceptable alternative.”

Update: 

The Maryland Senate passed the Maryland 529 reform bill 46-0 yesterday evening, which will shift the college fund’s management to Maryland State Treasurer Dereck Davis. The bill will go to Governor Wes Moore’s desk to become law, according to the Baltimore Sun.

Maryland 529 is a state-sponsored investment plan that allows families to put money in a trust for education expenses. It experienced a “calculation error” last year that froze 500 accounts and prevented parents from accessing their savings.

Free Our Interest NOW, Maryland529!!! advocates said that their next steps are ensuring the Treasurer’s office reimburses families after they were unable to access inaccurately calculated funds.

“Anything less than a payout equal to our contracted earnings rate will be unacceptable,” Brian Savoie, a parent advocate, said in a statement. “In order to make parents whole, it may be necessary to return to this topic during the next session of the General Assembly.”

The bill currently doesn’t offer repayment for account holders’ lost earnings. When asked about using the trust’s surplus for payouts in previous sessions discussing the bill, Davis said it was “above his pay grade,” and that decision would have to be made by the legislature, according to the Baltimore Sun.

Original:

Two General Assembly bills in Maryland’s House and Senate would abolish the Maryland 529 board, the state’s troubled college tax saving fund, and put its management under the state treasurer’s office by June, according to the Baltimore Sun. Maryland State Treasurer Dereck Davis has indicated he supports this measure.

“The 529 program is under siege,” Davis said in his reelection speech at a Maryland House meeting last week. “If you decide to abolish the current setup and put it in the treasurer’s office, like it is in most states, I would ask that you… give me the resources that I need to be successful, help me manage expectations for when this can be resolved, and let me do what needs to be done.”

Maryland 529 is a state-sponsored investment plan that allows families to put money in a trust for education expenses. Withdrawals from the plans are tax-free if they’re used for qualified educational purposes. Maryland 529’s prepaid plan, where parents can lock in “tomorrow’s education at today’s tuition,” experienced a “calculation error” in which parents were given inaccurate estimates of the money in their accounts. The mistake led to a freeze on the payment of their additional earnings.

In 2019, an audit by the Department of Legislative Services, the Office of Legislative Audits determined the agency needed a new operating system. So Maryland 529 hired Intuition College Savings Solution to streamline their processes. It was during this transition that the calculation error occurred. Other states like California, Arizona, and Delaware have their 529 programs overseen by their state treasurers as well.

Under these new bills, the treasurer could offer a rebate to account holders if the agency exceeds their assets by 30% or more. In our previous reporting, parents and board officials noted that the trust has earned a surplus of funds. The new legislation would also put the Office of Legislative Audits in charge of auditing the Maryland Prepaid College Trust, and introduces a provisional work group of parents lawmakers, the state treasurer, and staff from his office.

If the legislation goes into effect, the pre-paid college trust would basically be dissolved since parents won’t be able to purchase credits or invest funds in the trust on or after June 1. And after Jan. 1, 2025, account holders won’t be able to transfer their funds out of the prepaid college trust into another program.

For a little over a year now, families have been feuding with the Maryland 529 Board over inaccessible and inaccurate funds. Last month, the Maryland 529 Board claimed to have fixed the calculation error, but parents say that Maryland 529 isn’t fully honoring their original statements and can potentially take back funds that were overestimated, after parents made financial decisions based on those incorrect estimates.

In February, families who are part of the grassroots organization Free Our Interest NOW, Maryland529!!! advocated for enhanced oversight, accountability, and transparency in the Maryland Prepaid College Trust.

In a Friday afternoon press conference held by Free Our Interest NOW, Brian Savoie, a parent and advocate for the group said that there have been other issues with Maryland 529 as well. Just this past month, he said that the tax forms he received to file for this year’s taxes were incorrect.

“They simply said that they might get those fixed sometime,” Savoie said.

Parents are optimistic about the proposed legislation from the General Assembly but are taking time in the coming weeks to review the proposed bills and provide potential amendments. Savoie said there is no current intent for legal action from families, with hopes the state will act in good faith.

“No option has been taken off the table,” Savoie said. “There are 760 of us that are really hoping that the state will do the right thing; I think that we’re seeing the right movements from the legislature.”

Maryland 529 declined to comment on the Free Our Interest Now press conference, but did email a comment saying that they’re focused on completing manual reviews for account holders who requested them and are working to reprogram the automated recordkeeping system.

This story has been updated to include comment from the Free Our Interest NOW press conference and comment from Maryland 529. It has also been updated to reflect the state treasurer committing to the retroactive earnings rate.