PACT PROBLEM HANDLED POORLY
By Rep. Cam Ward

     By now many people throughout Alabama have heard about the financial fiasco that has taken place with monies invested in the PACT Trust Fund investment portfolio for the Alabama Prepaid Affordable College Tuition Plan (PACT). If you are parent like me, who has invested in this program thinking we had a guaranteed nest egg for our child's education, then you are likely very nervous about this situation.

     Almost two decades ago Alabama joined the trend of many other states at that time and created a PACT program. This program is structured similar to the Retirement System of Alabama in that it is overseen by a board of directors that meets on a regular basis. The PACT Board most recently met in February 2009. During this time the Board was informed by its financial analyst that the stock market declines had reduced the PACT program assets from $605,726,831 at the end of 2008 to approximately $480,000,000 today. As the severity of this problem unfolded, State Treasurer Kay Ivey held a news conference announcing that the PACT program is also suffering from the rising cost of tuition/fees and that the number of PACT students receiving benefits are at an all-time high. Currently there are over 40,000 enrollees in this program and the amount of money held in assets is dwindling and the cost of tution is rising so now we have a financial tsunami for the PACT Board and political firestorm for the State Treasurer.

     This crisis is likely to come to a head on March 24th when the PACT Board meets again to announce its proposed solutions to this problem. One route which has already been under way and met only limited success was to have universities honor the PACT enrollees benefits and just take a loss for the school. Some schools such as Troy University agreed to this to the tune of a $3 million loss. Alabama and Auburn University have balked at this arrangement because they have the highest number of enrollees and their financial losses would be HUGE. In the end the PACT only has a couple of real options- they could close enrollment in PACT, they could continue discussions with higher education institutions in the state to seek accommodations or consider statutory changes, including possible reductions in future reimbursement benefits.

     Regardless of the board's decision the political fallout will not go away so quickly. Several legitimate questions are being asked by the public. First, why was part of the financial audit report that detailed the PACT's investments omitted from their annual report? Why were people who enrolled in the program in its earlier years told in their contract that it was “guaranteed” when the state did not have the authority to do this? Later this terminology was no longer used in the PACT program contracts. Another questions that comes to mind is in light of so many other states around the country discontinuing the use of these plans, why did Alabama not only continue enrolling families in this program but it was widely touted by every State Treasurer who ran for re-election to this office?

     Finally, the biggest insult to those invested in this plan was how the troubles were announced to the public. Most people who participated in this program were notified of the financial problems by a letter that was received two days AFTER media reports began discussing this problem. Surely the board could have seen these problems ahead and notified the investors about this?

     While a lot of questions will likely be answered at the next PACT board meeting on the 24th the financial and political fallout from this issue will carry on for months or years to come.