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2009 June 1 - 12:00 am

MONEY TREE: State Pension Fund To Study Alabama’s Prepaid Tuition Plan

MONTGOMERY, Ala. (AP) — The state Legislature wrapped up its 2009 session without solving the financial problems in Alabama’s prepaid college tuition plan, but it did agree to have the state pension fund conduct a detailed study of the program.

Lt. Gov. Jim Folsom Jr., a member of the board that oversees the tuition program, said the legislative action should be sufficient to keep the board paying tuition for the upcoming college year while the study is conducted.

Folsom, who has a son in college using the program, said, “That’s the only way to do it.”

Both the House and the Senate approved resolutions to conduct the study.

The resolution calls on the Retirement Systems of Alabama to do a detailed study of the Prepaid Affordable College Tuition Plan and recommend what to do. The resolution says the Legislature is “determined to preserve the fund that allows many people in this state to attend college.”

“It’s a positive step,” said State Treasurer Kay Ivey, chairwoman of the board that oversees the plan. But she said a resolution is not legally binding and doesn’t carry any funding.

The tuition plan has allowed parents or grandparents to pay a fixed amount when a child is young and then have tuition at a state university or community college covered when the child finishes high school. The plan’s board invested the money, mostly in stocks, and used the earnings to pay tuition.

That worked well for nearly 20 years until the stock market plunged. The plan lost about half of its assets in the last year-and-a-half and the $470 million it has now is about half of what it needs to meet its future tuition obligations to the 48,000 participants.

Several bills were introduced in the Legislature to provide funding to the program, but none passed. Only one bill even got very far. That bill, sponsored by Democratic Rep. Craig Ford, would have borrowed $150 million from a state savings account to bail out the tuition plan. Ford’s bill won approval in the House, but the Senate never considered it.

The sponsor of the resolution, Democratic Sen. Roger Bedford, has a son in college in the program. Bedford said legislators want to see a thorough study by an outside source and want to see a price tag before deciding what to do, and the study by the Retirement Systems of Alabama will provide that.

Bedford said legislators respect the CEO of the Retirement Systems, David Bronner, and will pay close attention to his recommendations.

Folsom said there is no need for panic by the board or by participants.

“There is plenty of money in there to take care of tuition for several years,” he said.

The plan will need to spend about $68 million to cover tuition for the 2009-10 school year, Folsom said. 

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