Study Predicts PACT May Run Out in 10 Years
by Adam Smith / STAFF WRITER
Nov 12, 2009 | 1040 views | 0 0 comments | 12 12 recommendations | email to a friend | print


An August 2009 study by the Retirement Systems of Alabama concluded if people with Prepaid Affordable College Tuition accounts were paid full benefits, the funds would be depleted by 2016 if the economy continues as predicted.

However, the study said the funds could be depleted as early as 2014.

Established in 1990, the PACT program promised benefits to all account holders through 2032.

There are currently more than 45,000 account holders, and almost 20,000 are eligible to use the benefits.

The most recent actuarial study showed the liabilities for the program are $917 million, and the assets are only $571 million, which leaves a $345 million deficit.

Liabilities refer to how much money PACT needs to operate.

“An actuarial report is a snapshot of a situation where you are measuring assets and liabilities on a given day,” said Alabama State Treasurer Kay Ivey.

Ivey said on any given day the fund could pay for only 62 percent of students with its current assets.

“There will never be enough money in this moment to provide for tuition for all of those students without some kind of funding mechanism to pay the tuition over the short time until the corpus of $571 million can grow when the market grows,” Ivey said.

PACT was pioneered in 1990 by Lt. Gov. Jim Folsom Jr. and George Wallace, who was treasurer at the time, said Gwen Braden, co-leader of the Mobile branch of Save Alabama PACT.

Braden said there is normally a continuous flow of money going into the PACT portfolio, primarily from new contract buyers.

The invested money then earns more in the stock market, increasing the total portfolio.

“Since the portfolio lost money last year, and they have stopped any new contracts, that has stopped the flow of new money coming in,” Braden said. “The only new money coming in (is from) people who bought contracts in the last two years and are continuing to pay into it. But that will stop unless the state allows them to reopen it to new contracts, or unless the state steps in and funds it.”

Braden said the stock market failure is completely to blame for PACT’s deficit.

Ivey said it is impossible for the program to make enough interest on the invested money to outpace the rising cost of the tuition.

“There has to be another supplement of some amount of money to keep the program floating so that there’ll be enough cash money to pay the tuition needs of the students who become eligible for the program every year,” Ivey said.

Although the PACT program operates out of the treasurer’s office, Ivey said it’s up to the legislature to find a solution.

“It’s only the legislators that can change law, modify law, pass law or make appropriations,” Ivey said.

But it remains unclear exactly what the legislature will decide to do about the $345 million deficit.

“I’m sure there’ll be plenty of proposals to deal with the PACT situation, but it’s too soon to speculate on exactly what those will look like and what they’ll do,” said Todd Stacy, press secretary for the governor’s office.

Ivey said the PACT board is going to support the voters by providing them with information and ideas as they prepare to cast their ballots in January.

“Governor Riley has told constituents personally and through statements in the media that he believes Alabama has an obligation to live up to the commitments it made to the PACT families,” Stacy said.

The board also agreed to work with Save Alabama PACT, an organization established to raise public awareness about the PACT’s economic situation.

The organization has since contributed to the state’s effort to find a solution to the funding problem, with more than 1 million hits online.

“We feel like the most important thing that we can do is be a positive voice, to encourage the contract holder to stay motivated and to make certain that their elected officials are aware of their concern,” said Patti Lambert, president of Save Alabama PACT. “And that we can, in the next election, make certain, being a single issue constituency, that we will be able to make sure that the people that are reelected in office share our beliefs and will do the right thing.”

Lambert said she plans to get students actively involved in the legislative process as January approaches.

“We intend to spread out the state in units to have, every week, a constituency of PACT contract holders visit them in their offices and have them look (the students) in the eye.”

Save Alabama PACT petitioned the treasurer’s office to give them names of students the benefit from the fund. The board refused, but revealed the ZIP codes of the account holders, which Lambert’s organization plans to use to notify legislative members how many voters they can expect in each district.
Comments
(0)
Comments-icon Post a Comment
No Comments Yet