While there has been a great deal of talk over the past several months about Alabama’s Prepaid Affordable College Tuition Trust Fund (PACT), we have seen no real action taken toward solving a major problem that affects lots of Alabamians. The PACT program was established to provide benefits to all contract holders in the form of tuition and fees to attend Alabama’s colleges or universities. The PACT Board exercises full authority over the actuarial and financial safety and solvency over the PACT plan to meet the obligations of PACT contract beneficiaries.
PACT assets were reduced by hundreds of millions of dollars due to massive losses in the underlying equity of PACT’s assets. In laymen’s language, they lost their shirts in the stock market. As has been documented, the investment losses made it impossible for PACT to meet its obligations for approximately 48,000 PACT contract holders. These contracts were purchased by persons who relied implicitly on the “promises made, promises kept” guarantees and representations stated in PACT contracts. Based on reliable information, many also relied on communications from persons associated with PACT.
Since the beginning of PACT 20 years ago, 76,251 contracts have been purchased to provide the stated benefits of the PACT contracts. Folks are greatly upset and rightfully so at what has happened. The massive unfunded liabilities of PACT’s plan to meet the obligations for the active 48,000 contract holders are the focal point of the problem. All contracts entered into by the PACT Board with nearly 48,000 future university and college students must be honored.
It has been reported that the investment fund backing Alabama’s prepaid college tuition program is about $350 million short of what it needs to meet its obligations. The program’s assets, once valued at nearly $900 million, were heavily invested in stocks, and their value fell below $500 million. The program now lacks the resources to meet its obligations. The Governor and the Legislature must work together to save this program. The 2010 Legislative session begins in January. Gov. Riley, legislators from both political parties and members of the PACT Board must work out a solution to this matter in advance and have any needed legislation ready for introduction when the legislators come to Montgomery for the session.
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