Weeks after Maryland Treasurer Dereck Davis assumed control of the state’s troubled college savings agency, parents are accusing his office of a lack of transparency and urgency in figuring out the value of their investments in the prepaid college trust.
Davis took the helm of Maryland 529 on June 1, after Gov. Wes Moore (D) signed legislation to overhaul the agency that runs the state’s two college savings plans. Lawmakers and account holders criticized Maryland 529 for obfuscation and incompetence after the agency suspended earnings on 31,000 prepaid tuition accounts last year, citing a calculation error that it said inflated balances.
Now, some of those same complaints are being lodged against Davis.
Parents who have spent years or decades socking away money for their children’s college bills are pressing the treasurer to set a rate of return on their accounts, stand up a claims process or provide a firm timeline for either as fall semester tuition is coming due. They say Davis’s initial communication with families after the takeover — which spoke in generalities about how he was there to help — is wholly insufficient after months of fighting to get answers. And many are livid that the treasurer appointed Anthony Savia, Maryland 529’s former executive director, to be his deputy.
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“It feels a lot like ‘Groundhog Day,’” said Brian Savoie, a prepaid account holder in Silver Spring. “We have some of the same leadership and the same frustration of not knowing when any of this will be over. There does not seem to be any appreciation of the fact that tuition is due in 45 days.”
Davis is imploring parents to be patient as his office gets a handle on the scope and magnitude of the problems facing the prepaid trust.
In an interview, Davis said the depth and breadth of the issues are “a lot to behold,” but his team is “working as expeditiously as possible.”
“I know people are anxiously awaiting the interest rate and their ability to access their money,” Davis said. “And we want to do that as quickly as possible, but the one thing that trumps speed is accuracy and we’re trying to be as accurate as possible.”
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He said his office expects to have a resolution well before the start of the fall semester. But given Maryland 529’s track record of missing self-imposed deadlines, Davis said he doesn’t want to gamble with his office’s credibility by setting a timeline it can’t meet.
Maryland state Del. Catherine M. Forbes (D-Baltimore County) and state Sen. Joanne C. Benson (D-Prince George’s), who wrote bills transferring control of the agency to the treasurer’s office, did not respond to requests for comment on the transition.
Unlike a traditional 529 plan, the Maryland Prepaid College Trust lets families lock in future tuition payments by purchasing semester credits when they open an account. A 2019 state audit found that Maryland 529 invested the money it received from families but distributed earnings inequitably for years. People who rolled over the funds in their prepaid trust into a traditional 529 received higher earnings than those who took distributions through the minimum benefit option in the trust. That disparity created an unfair advantage that parents say was never explicitly advertised.
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The new state legislation directed Davis to decide the rate of return on prepaid accounts and resolve claims brought against the trust by account holders. It abolished Maryland 529’s 12-member board of directors and ceased new enrollment in the prepaid trust but kept the agency’s staff in place.
Davis was also tasked with appointing a deputy treasurer to administer the program, and he said Savia was a logical choice because of his institutional knowledge. It would take months to bring anyone else up to speed, and that is far more time than parents can afford, Davis said. He stressed that the problems with the trust predate Savia’s 10-month tenure as executive director and said that Savia has been apologetic for the poor communication with parents.
“There are a lot of other people that we can hold accountable before we get to Mr. Savia,” Davis said. “People are frustrated, and they have a right to be. But the buck starts and stops with me. I’m running the program for all practical purposes. I have people who are assisting me, but I’m in charge.”
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Some account holders say Savia spun a false narrative about the earnings problem. At a January legislative hearing, for instance, he told lawmakers that tuition benefits were never frozen. Yet parents said they could not roll over the funds in their accounts to the state’s traditional college savings plan. Savia and the board also insisted that families didn’t understand their contracts and claimed the staff gave parents wrong information about when and how much their interest payments would rise.
In June 2021, the Maryland 529 board told families that it would begin applying earnings the same way for rollovers, refunds and minimum benefits to address the disparity. The board said because of excess funds in the trust, account holders would earn 6 percent on balances held before Oct. 31, 2021.
Prepaid account holder Eric Marshall contacted Maryland 529 to confirm the new rate would be applied retroactively and received an email in August 2021 from finance director Janaki Kannan assuring the 6 percent increase would “begin from the date of the contributions to the plan.”
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That explanation lined up with the year-end 2021 statement Marshall received valuing his prepaid plans at a total of $91,000. He had contributed $19,000 in 2002 for his son and $25,000 a year later for his daughter. By the end of 2021, half the benefits had already been used to send his children to Towson University and the University of Maryland, but the statement showed there would be enough to get them through graduation.
Asked about the assurances Marshall and other account holders received from Maryland 529, Davis acknowledged that parents heard from the staff that they would be entitled to the rate from the inception of their accounts. But he said the assurances reflect a “miscommunication between what the board intended and what the staff interpreted.” He said it does not necessarily mean parents are entitled to the 6 percent retroactive rate, though has not ruled it out.
“If the bank made an error and put too much money in your account, do you get to keep it?” Davis said, in an analogy that echoes what Savia told the state Senate in January.
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Marshall finds the parallel messaging from Savia and Davis disheartening.
“With Tony Savia still involved, the treasurer is taking everything he said in the past as the truth and a lot of it wasn’t,” Marshall said. “It’s pretty disappointing to see that they’re basically just holding the company line, that this was a miscommunication. This was definitely not a miscommunication.”
Account holder Kirk Litton is losing faith that the treasurer is on the right track to fixing the problem and says legal action is not out of the question. In an email to the treasurer earlier this month, Litton wrote, “It’s not clear to any of us that you truly understand where the damage has been done. We were owed 6 percent for all prior years BEFORE …[the] Board vote or Board intent. Please listen and let’s get this fixed.”
Davis said he is listening and doing his best to address the harm that has been done, but it won’t be easy: “It’s going to be quite an effort to make sure we can make folks whole and still keep the program solvent,” Davis said.
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