Sunday, January 13, 2013

Treasurer: Audit not complete on MPACT. Board can close program.

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%


Anonymous said...

It's looks like Tate Reeves had it up there nicely and hit the bump everyone else did in 09, but had it back up to 83% and Fitch managed to sink it seven points in her first year, in a recovering market. Nice work Lynn!!

Kingfish said...

No one had a good year investing that year. If you look at the markets, August 2011 killed them and they spent the next 9 months recovering.

Anonymous said...

This won't end well. College tuition outstripped all inflation categories except medical; contractual costs charged to participants failed for too long to keep up with same; assumed rates of returns never materialized and participation costs were not adjusted to reflect the new reality; and new enrollees if permitted will be unable and unwilling to pay the increased cost necessary to make up the shortfall as they will be noncompetitive with actual costs or of other programs. This has been allowed to become a defacto Ponsi scheme on par with the PEERS program. I say we put the two group (PEERS and MPACT) in a room, lock the door and let them decide which of them gets gelded and which gets to retire at 50.

My 2 cent,

Anonymous said...
This comment has been removed by a blog administrator.
Kingfish said...

One other thing. While expenses are being paid out (tuition), the suspension prevented new contributions from entering the program. Just something to consider although it does limit future liabilities.

Anonymous said...

I'm confused. I'm currently paying for my 2 kids' MPACT on a monthly payment for the next 10 years. Are they covered for what we signed up for?

Kingfish said...

You're fine. They have to honor contracts already signed.

Anonymous said...

Treasurer Tate asleep at the wheel.

Anonymous said...
This comment has been removed by a blog administrator.
Anonymous said...

This is what happens when you have non-investment people running investment accounts. WHEN will the state wake up and realize the good ole boys and gals don't understand the big picture of investing, and only want the prestige of being on these Boards.

And don't say they hire out investment people. They hire out their buddies who THEN hire out outside managers. More lost money for "management fees", and lining the pockets of buddies. Hiring in- house investment people in the first place would save a LOT of money. You do NOT need the middle men to hire outside big boy investment managers. Have they really done that great of a job? Competent people can hire their own managers, and directly investment part of the funds themselves, without helping out their local investment professionals.

Shadowfax said...

I assume 'Jawbreaker' is alluding to PERS, not PEERS (PEER?). Jawbreaker sounded well informed until he twice misspelled the name of the program that covers thousands upon thousands of current and future State retirees.

This is all way too complicated for the average camper and casual reader to absorb, much less grip. Don't we elect people we think we can trust to manage the government and don't we UNelect them or jail them if they don't?

Way too many anonymous 'experts', Monday Morning Quarterbacks and unelected Treasurers appearing here with machetes and cups of arsenic. God forbid people start making family financial decisions based on anonymous, politically motivated input found on a blogsite.

Anonymous said...

Kingfish @ 10:31; Are you the same Kingfish now saying they have to honor signed contracts who says elsewhere the signed contracts with state retirees need to be modified regarding 13th checks?

Anonymous said...

so what exactly does this mean?

"*MPACT should charge participants when the terms of the contract are changed."

Anonymous said...

Treasurer Fitch states that all MPACT Contracts are safe and backed by the full faith and credit of the State of Mississippi - and that all MPACT contracts sold will be honored. For an attorney, Fitch is either plan stupid or withholding information from the citizens of Mississippi. According to MS Code 37-155-25 which reads:

"In the event that the board determines the program to be financially infeasible, the board may discontinue the program. Any qualified beneficiary who has been accepted by and is enrolled or is within five (5) years of enrollment in an institution of higher learning or any in-state or out-of-state regionally accredited private four- or two-year college or an out-of-state regionally accredited, state-supported, nonprofit four- or two-year college or university shall be entitled to exercise the complete benefits for which he has contracted. All other contract holders shall receive a refund, pursuant to Section 37-155-9, of the amount paid in and an additional amount in the nature of interest at a rate that corresponds, at a minimum, to the prevailing interest rates for savings accounts provided by banks and savings and loan associations."
What this means that if you have a child that is in the 7th grade today and MPACT shuts down tomorrow, you will get a refund plus they will pay you "prevailing interest rates" (check out what you make on a savings account!)
What about all the parents of kids now yet in school or under the age of 13 (example) - They're screwed that is!

Anonymous said...

Fitch knows this was marketed as being backed by the full faith and credit of the state. At no time did any of the marketing materials have an * disclosing any loopholes. Nope, it was "full faith and credit." Get ready for lawsuits if they try to refund. I hold two contracts and can promise that I will file a lawsuit.

Anonymous said...

Tate Reeves will find money to rescue MPACT before he lets it be shut down.

Anonymous said...

Tate Reeves and Lynn Fitch could not find an elephant in a five acre field, nor could both COMPETENTLY hold down a good job in the private sector. You around here know this, so lets own-up to the truth, no wonder this program was doomed to defeat.

Anonymous said...

Not sure why they didn't say everything was fine and engage in a social security type ponzi scheme to keep it going. Now the word is out and people will not invest. I've got 3 years before my child will be able to utilize the $15K we invested. I hear the toilet flushing again...there goes another pile of my money right down the sewer.

Shadowfax said...

10:12; if the statute says you will receive a refund (if not full funding of your child's education) then what's the cause of the toilet you think you hear flushing? They get paid-for-college or you get a refund. How does that equate to your money going down a sewer? From what other investments does one get a refund when the shit hits the fan?

Anonymous said...

Shadow, don't be naive. He didn't mean that literally (I assume?) but answer this, you go in the bank, make your last mortgage payment and the banker smiles and says, "here is your money back with a whoping 1% return, have a nice day". I think that's what he meant. In my example, these folk don't want their money back, they want their mortgage!!! And, what about the Treasurer competing with private sector providers in MACS, unbelievable.

Shadowfax said...

I take people at their word and assume a post is halfway thought out before entered. Let the man speak for himself. He said his money would be down the shitter. If he gets it refunded, it's not. You can 'think what he meant' all day long. Again, where else can programs run afoul of investment realities and you get a full refund?

Anonymous said...

A brainfart that once disappeared into the whirlwind of time is now preciously preserved in the Terabytes of yesterday. Thank you Shadow' for highlighting my misappropriation of nomenclature (and the lack of editing thereof). As the pointy part of the full faith and credit spear that is the State of MS I trust that those who argue malfeasance in the management of the MPACT (and the PERs) deficit consider enlisting the services of PEERS as they sort this quandary out.


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