Participants in the Alabama state prepaid tuition program (PACT) received a nasty surprise last week, a letter from the PACT trust fund highlighting these problems with the fund:
"As you know, the stock market has dropped approximately 50% in the past 14 months. This event has had a significant negative impact on the invested assets of the PACT trust fund. PACT is hurting like every other retirement fund and investment account. The good news is that the Board is working hard and considering options to maintain the viability of PACT."
Here is a chart showing the sharp drop in assets from $899 million on Sept. 30, 2007 to $484 million on December 31, 2008:
As for the explanation of why the program is in danger:
"The Trust Fund and investments under PACT are not bank deposits, and
are not debt obligations of, or insured or guaranteed by the FDIC, the
State, the Board, the Treasurer, the PACT Program, or any other state
or federal governmental agency," a disclosure document says. "None of
these entities or persons has any legal or moral obligation to ensure
the ultimate payout with the respect to the purchase of a PACT
Contract."
Moral of the story: Read the fine print of the disclosure documents for the prepaid program. Before investing in a prepaid tuition plan, be sure that is has an explicit guarantee or backing from the full faith and credit of the state.
Related post:
- Prepaid college tuition plans: Not always a guarantee! (March 4, 2009)
- Prepaid college plans get a second look (February 24, 2009)
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