By Jeff Amy/The Associated Press
JACKSON, Miss. (AP) — A report on Mississippi’s prepaid college tuition program says it’s unlikely to earn enough money to meet investment expectations and calls for future contract purchasers to pay more.
However, it’s unclear if the Mississippi Prepaid Affordable College Tuition Program will ever take new enrollees. State Treasurer Lynn Fitch says consultants are still examining options, and won’t present recommendations for three or four more months.
“We’re not going to rush anything here,” Fitch said Friday, as she released findings of the report. “We will take the time to digest the audit.”
The board that runs MPACT suspended new enrollments in August, saying investment returns weren’t keeping up with rising tuition costs. The plan still has more than 22,000 contracts, and the state is required to pay full-price of tuition for those enrollees.
Fitch said the plan now has about 77 percent of money it will need to pay benefits. She defined “appropriate funding” of the program as having 100 percent of the money needed to pay future claims.
“We have not had appropriate funding of the program since 2000 and that’s a long time to not have adequate funding,” she said.
Tate Reeves, the former treasurer and current lieutenant governor, has said that 100 percent may not be strictly necessary. Consultants for the Public Employees Retirement System have suggested that the minimum funding needed there is about 80 percent. Both MPACT and the retirement system function on similar principals, taking money now and investing it to pay benefits later.
Fitch suggested that the state could also consider setting up a new prepaid college fund, one that might sell credit hours instead of a contract for all of college, or that might force community colleges and universities to guarantee that money will be sufficient instead of putting that burden on state government as a whole.
Right now, MPACT has $274.7 million under management. Through the first six months of this budget year, it’s making a 5 percent annual return. That’s above the historical average of $4.8 million and well above the 0.6 percent return on the fund in the 2012 budget year. But MPACT targets a yearly return of 7.8 percent, which is needed to keep up with the historically rapid increase in college tuition.
Actuaries at Gabriel Roeder Smith & Co., a Michigan firm hired by the plan, say MPACT is likely to meet or exceed 7.8 percent only 43 percent of the time, and that 7 percent is the rate the fund is likely to make in the better half of years. If the expected rate of return were to be lowered to 7 percent, MPACT’s gap between what it has and what it needs to make future payments would rise from $90 million to more than $100 million, actuaries wrote.
The consultants also said MPACT should charge more up-front to pay for administrative expenses, as well as for the fact that plan participants are likely to enroll in universities that charge the most in tuition, such as the University of Mississippi and Mississippi State University.
Mississippi continues to enroll new entrants in the separate Mississippi Affordable College Savings Program. In that program, people invest money and don’t have to pay taxes on gains, but don’t lock in a price for tuition at a Mississippi public university. So savers might come up short, or might end up with more money than needed for college.
Online: MPACT actuarial report: http://bit.ly/VRylxs