Treasurer Lynn Fitch announced at a press conference, an actuarial firm found "twelve areas of concern" in the Mississippi Prepaid College Savings Tuition program, in a report commissioned by the MPACT Board of Trustees. The Board of Trustees suspended registrations in the program in August 2012. There are over 22,000 participants enrolled in MPACT. The Board has not met since September and and is not scheduled to meet for January.
The Treasurer emphasized the program's assets has averaged a rate of return of 4.8% even though the assumed rate of return is 7.8%. She said the MPACT had only a 43% chance of achieving its 78% target. The program was funded at a level of 76.8% in 2012. She said lowering the assumed rate of return by a full point will decrease the funding level to barely above 70%. The firm recommended raising prices. The rate of return for 2013 is 5%. The S&P 500 decreased 0.07% since July 1, 2012, the start of the current fiscal year.
Ms. Fitch said the review of the program is a "long process" and the entire audit will take 18 months and "time to digest the audit". The report posted below is phase I. The audit will be conducted in four phases. Phase II will take 90 to 120 days to complete. Mississippi is one of only four states that backed programs with the full faith and credit of the state. Ten states closed such programs as they sought to limit their liability. The Treasurer said the state should examine whether it should continue to provide such support to MPACT. Ms. Fitch said it was "not her desire to close the program" but instead determine if changes could be made to ensure its survival. However, she did say the board did have the authority to close the program.
Ms. Fitch said the target funding level should be 100%. This correspondent pointed out the plan achieved a funding level of nearly 90% for several years and most experts consider 80% to be well funded (see chart below). However, a representative of the Treasurer said since the amortization for MPACT is shorter than PERS (child goes to school in less than eighteen years versus thirty year amortization for a state employee), the funding goal for a well-run plan is considered to be 98% to 102%.
The Treasurer also said the board will examine offering different options for enrollees such as purchasing hours of college credit. She said the MACS program was in good shape with an enrollment of 9,945 participants and assets of $145 million.The actuarial firm of Gabriel, Roeder, Smith, & Company made the following conclusions:
* If the assumed rate of return is decreased to a rate at or below 7.0%, the unfunded liability will increase above $100 million. The unfunded liability in 2012 was $94 million.
*MPACT should charge participants when the terms of the contract are changed.
*Each 100 basis point change in the assumed rate of return will change the funded status by approximately 400-500 basis points. Dropping the assumed rate from 7.8% to 6.8% will lower the funding level from 76.8% to 72-73%.
MPACT discussion starts at 14:11.
Facts from the June 30, 2012 Actuarial Valuation and Report:
Deficit: $94.4 million (p.2)
2012 Funding level: 76.8% (p.1)
2011 Funding level: 83.3% (p.1)
Return on Assets: 0.6% (p.1)
Increase in average tuition for 4-yr colleges: 8.6% (p.1)
Assumed rate of return: 7.8% (p.1)
Assumed annual tuition increase: 6.5% for 4-yr colleges (p.1)
Participants in 2012: 22,293 (p.1)
Participants in 2011: 21,218 (p.1)
Market Value of Assets: $265,125,878 (p.2)
Present Value of Contract Liabilities: $407,454,351 (p.2)
Contributions: $47.9 million (p.3)
Rate of return required to satisfy all future benefits/expenses: 12.22% (p.7)
Projected year for assets to be fully depleted: 2025
Percentage of 4-yr contracts by Big 3: 83%
Percentage of 4-yr contracts by JSU: 11%
Percentage of 4-yr contracts by the rest: 16%