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Some parents question revised account balances after Maryland 529 error

6 min

Maryland’s college savings agency said it is wrapping up examinations of prepaid accounts after an error led it to suspend interest earnings last summer — an issue that left some parents scrambling to pay tuition.

But some families are dubious about their updated account balances and are questioning whether the state is living up to the terms of its contract.

Heather Boley, an Owings, Md. resident with three prepaid accounts that were opened between 2005 and 2007, said she believed she had $94,000 in her oldest daughter’s account. However, Maryland 529 now says the figure is closer to $35,000 after it manually recalculated the earnings, she said.

“They retroactively took away the earnings we received,” said Boley. “They led us to believe they would just unfreeze our funds once the manual calculations were done, but that didn’t prove to be true.”

Maryland 529 told families two years ago they would earn 6 percent on balances held before Oct. 31, 2021, because of excess earnings from the trust. But the agency said it erroneously applied the formula in a way that inflated the values of accounts between November 2021 and April 2022.

“This is equivalent to if you open your account today and it says you have $100,000 in your checking instead of the $5,000 you really have,” Maryland 529 Executive Director Anthony Savia told members of two state Senate committees this week. “While it would be great to have, it’s not accurate.”

In August, the agency halted interest payments until the error could be corrected and hired third-party accountants to verify calculations. Savia told lawmakers earlier this month that the agency had prioritized the accounts of nearly 500 families who needed distributions immediately and completed reviews for 418 of them.

Boley and other account holders say they did not anticipate their balances to be slashed by tens of thousands of dollars after decades of investment and healthy gains. Some say the 2021 Maryland 529 annual report, which said the 6 percent would be “credited ... on account balances at the trust since inception,” is evidence that they are owed far more than the auditors now claim.

Asked about the discrepancy, Maryland 529 pointed to a FAQ on its website and a PowerPoint presentation created earlier this month, but did not answer specific questions about how the rate was applied.

Families say they are being told the 6 percent rate only applies to money held from November 2021 onward, and not to earlier contributions. They say that explanation does not align with prior reports.

Maryland State Sen. Mary L. Washington (D-Baltimore City) is calling on state Attorney General Anthony Brown to launch an investigation into the management practices at Maryland 529. A spokesperson for the AG’s office said it was “currently advising the 529 plan in addressing the challenges they are facing.” State auditors were already set to examine whether the agency had addressed management problems raised in a 2019 report, and said the latest calculation issue would also be part of the review.

At a joint hearing held this week by the Senate Budget and Taxation Committee and the Education, Energy and the Environment Committee, Savia and interim Maryland 529 board chair Geoffrey Newman told state lawmakers the calculation issue has been resolved and no account holders have lost funds. But several lawmakers questioned why they were hearing from constituents who say they have been shorted money.

Maryland State Sen. Sarah Elfreth (D-Anne Arundel) said she received an email during the hearing from a constituent whose account had been recalculated with a far lower balance than anticipated.

“I appreciate these are all complex accounts, but they invested 18 years and their interest is mindbogglingly low,” said Elfreth, a member of the Budget and Taxation Committee.

Elfreth said she empathized with families who relied on the 2021 values of their accounts to make college decisions.

When Howard Griboff’s youngest son set his sights on Emerson College in Boston last year, the father of two in Rockville gave his blessing believing the family could afford the pricey private school.

The December 2021 statement for his son’s Maryland Prepaid College Trust valued the account at $86,000. But when Griboff tried to withdraw money to pay for the first semester in July, the plan administrators told him he could only access $5,300, roughly half of the amount he expected.

After dipping into his savings to make up the difference, Griboff requested a review of his account in October. Three months later, he was told he only had a $34,500 balance.

“Basically, they’re telling me I’ve had $4,000 of earnings since 2004. I don’t accept that, but they’re not giving me an opportunity to appeal,” he said. “If this isn’t resolved, I will need to take loans against my retirement for my son’s sophomore year.”

Griboff said that in October 2021 he checked the value of his son’s prepaid account and was told by Maryland 529 that is was worth more than $73,000. As a result, Griboff said he had no reason to doubt the figure listed on the statement months later.

“We had a reasonable expectation of earnings and a reasonable expectation that documents that were given to us on letterhead were correct,” he said. “We made decisions in reliance on those documents.”

Boley also encouraged her daughter to attend the University of Pittsburgh because of her college savings. When Maryland 529 froze the earnings in August, Boley could only access $5,500 to pay toward the $17,000 owed for tuition. She said Pitt gave extensions as months went by without a resolution, but her daughter ultimately had to borrow the money from her grandparents who drew down their retirement savings.

“Maryland 529 in the hearing implied that we just didn’t understand, everything is fixed. They are missing the bigger picture: what are you going to do to for the families you’ve harmed?” Boley said.

During a Maryland House Appropriations Committee hearing last week, Comptroller Brooke E. Lierman (D), a new member of the Maryland 529 board, urged the agency to “make parents whole.”

Boley said the only way the agency could make her and the hundreds of families impacted by their error whole would be to honor the 2021 value of their accounts.

“None of us have the time, the luxury of time to compensate for this [loss],” Boley said.

The Maryland 529 board plans to hold a meeting at 11 a.m. Monday.