Issue Position: College Savings Programs

Issue Position

There are two programs, the Wallace-Folsom PACT Program and the College Counts 529 Plan.

1. Wallace-Folsom PACT Program
Started in 1990, this program was designed to be a pre-paid, affordable college tuition plan. At the time it was a fad among state treasurers to implement this type of program. Almost all of these programs have since failed or are struggling mightily. Like the others, our PACT was a political ploy. It was poorly designed, poor administered and is in deep financial trouble. It has turned out to be a billion dollar blunder. Alabamians invested in good faith for their children and grandchildren while certain politicians were building their resumes for the next campaign.

But little did the people know that PACT was flawed from the beginning. In 1990, then-Treasurer George Wallace, Jr., implemented the defined benefit type program. The structure of that type of program was being abandoned by corporations and governmental units in the 1980s and 1990s. It was legally designed for the contract holder to bear all of the investment risk. However, it was marketed as "guaranteed," apparently to sweeten the political promise. That mistake was recognized and corrected in 1995 by Treasurer Lucy Baxley when the guarantee language was removed from the plan paperwork.

In 2002 a superior college investment option was introduced in the form of the Alabama Higher Education 529 Fund, which reduced PACT attractiveness and sales.

From 2002, tuition costs grew at a much faster rate than the expense projections. In order to meet the obligations of the plan, investments under the PACT programs were forced to become more aggressive and therefore more risky. This aggressive asset allocation made the portfolio more vulnerable to a decline in the stock market. In 2008, the unusually sharp decline in stocks heavily damaged the value of the portfolio. It is now extremely doubtful that the principal of the PACT plan would ever grow large enough to meet plan obligations.

Putting a program of this type in place broke an important rule. Government should not guarantee the investment returns of an individual citizen.

There is no "sound bite" solution to this problem. Resolving it will require financial leadership and a collaborative effort among all parties involved to craft a workable resolution. I am a problem solver and I have the financial expertise it takes to reach a smart, sound solution. The objective is to provide the contract holders with what they bargained for.

Moral of the story:

Government should do certain things for its citizens, such as build roads and provide police protection. It should not guarantee the investment returns of an individual citizen.

2. College Counts 529 Plan
There are about 62,000 participants in the Alabama 529 plan, which has a total invested balance of $660 million. The Fund was started in 2002 and was originally known as the Alabama Higher Education 529 Fund. It is a defined contribution type plan that has become the preferred tax advantaged method for long0term investing to provide for college education.

During my career, I have founded an investment brokerage firm, obtained a Series 7 and a Series 63 securities registration, overseen the management of a multi-billion dollar investment portfolio, served on the investment committee of many non-profit organizations, served on the board of a world class university with a comprehensive financial aid program and successfully provided for the college education of my two children. I am well qualified to oversee these programs.

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