State college savings plan could be an election issue –

With the state’s college savings program seeing most investment funds down for the year, one analyst sees a potential cost to taxpayers.


Parents investing in Illinois’ Bright Start college savings program may have been shocked at their fund balance in recent statements.


Of 17 different individual portfolios, the Bright Start performance statement online shows investments in 13 of them are down over the past 12 months. Five of the funds are down double digits, with the T. Rowe Price Large-Cap Growth 529 Portfolio down nearly 23.5%.


Independent analysts Bill Bergman said stock market losses are being felt across all sectors for anyone invested. One thing Bergman said to watch for with Bright Start is how taxpayers may come to the rescue, as is done with public sector pensions hit by poor investment returns.


“It’s not so direct in the case of these college savings plans, but there may be indirect forms of pressure from the state to bolster the position of people in these plans that isn’t available for people trying to save on their own for education,” Bergman told The Center Square.


In April, taxpayers covered a one-time $230 million payment for the unfunded liability in the now defunct “College Illinois!” program that ended enrollment in 2017, a move the state says will save taxpayers $75 million over the long term.


“The Program is permanently closed to new enrollments, and will continue to operate as usual for the beneficiaries of the nearly 25,000 current contracts, with no change in benefit payments, customer service, or plan administration,” said a statement on the College Illinois! website.


The monthly financial report for College Illinois! shows a decline in the rate of return of 5.56% since last year.


For the Bright Start program, Illinois Treasurer Michael Frerichs’ office says individuals choose their risk tolerance.


“[I]ndividuals choose their 529 investments based on their own risk tolerance, goals and time horizon,” said Frerichs spokesman Greg Rivara.


State Rep. Tom Demmer, the Republican challenging Frerichs in the November election, said with most funds down and nearly a third down double digits for the year, the treasurer needs to communicate more with families about their investments. Pointing to the poor results of College Illinois!, Demmer said Illinois doesn’t have a stellar record on college savings programs.


“It highlights the need for the state treasurer to be hands-on and not to sort of pretend that a recession isn’t happening, or not to pretend that the Biden administration hasn’t overseen record inflation,” said Demmer, R-Dixon. “We need to be frank and upfront in what’s happening in our economy and look for ways to try to mitigate the damage from that.”


Demmer said the treasurer needs to be evaluating what the costs are, look at expense ratios and performance and find lower-cost plans to soften the impacts on parents’ investments.


“There are some really tricky economic times ahead,” said Demmer. “And we can’t ignore that, we need to be proactive on how to manage that.”


Bergman warned, “it’s possible we have an extended period ahead of us of poor stock market performance.”


“Which for these plans as well the public pension retirement plans would have significant implications for the participants and perhaps even taxpayers in the state of Illinois,” Bergman said.

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via rk2’s favorite articles on Inoreader

August 3, 2022 at 07:12AM

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