It's a question floating around blogs, newspaper editorials and letters to the editor. Why did PACT parents and grandparents think their investment wouldn't lose money? Furthermore, the questions ask: "I've lost a lot in the market, so why should tax dollars prop up your dumb investment?"
...but if it was just some glorified mutual fund, aren't the people who invested in the program culpable also in this matter?
I mean there is something called "Buyer Beware"...that it is incumbent upon everyone that signs a contract to know what they're getting themselves into. Thats why you need to read any contract before signing it, or if you're unable to for whatever reason, to get a competent lawyer to do so for you. I think, after giving it some thought, I for one need to see the contract before rushing anymore into this blame game.
Below the fold, I'll try to answer some of the questions and criticisms I've seen in a FAQ format. One that I certainly hope is more illuminating than the one the PACT board put up.
Oh, there's also a short video of parents and grandparents at the Montgomery parent's meeting on March 12th. They tell their stories. One is a banker who describes how George Wallace Jr. (then state treasurer) solicited the Alabama banking community to sell the program to the public in the early 1990's. Other parents read from their contracts... words like "guarantee" and "assurance" are in each one. To my knowledge, the definitions of those words haven't changed in the last 20 years or so.
Question 1: You guys just made a bad investment. Why should taxpayers bail you out?
Answer: The PACT contract holder didn't "invest" in anything. They bought a "contract" that - until 2001 - "guaranteed" 4 years of undergraduate tuition. Please check out these documents to review the contracts and marketing literature:
Question 2: #$%# the marketing literature! This was never guaranteed! What about due diligence?
What about the State of Alabama having a duty to disclose the risks of the investment up front instead of in the fine print? Remember that this program began in 1990. It was marketed as "guaranteed" tuition and a "prepaid" plan. In fact, even today, the Alabama Commission on Higher Education Web site still calls the plan
A contract to guarantee four years of fully paid undergraduate tuition at any public junior college, college, or university in Alabama;
Question 3: Why didn't you read the fine print?
Yes, the bill didn't put the "full faith and credit" of the State of Alabama behind the plan, but none of the marketing literature or contracts mentioned that during the first few years. The current documents are very clear. But in the early to mid-1990's, they were not. And this is pre-Internet days. Did the PACT board and Legislature really expect Alabama residents - many of whom live in isolated rural areas - to go to the public library or somewhere and review the bill's text and Alabama code?
Question 4: Hey, my investments have fallen too. Why should your's be any different?
Again, in the early days, this program was not sold like a mutual fund or stock. Rather, it was an insurance policy. No matter what, people had a firewall - at least their kids' and grandkids' tuitions would be paid for.
As Tim Carver from Hoover said at the March 12 meeting:
"My wife and I took our nest egg and bought lump sum contracts for our kids. Even in retrospect, there is nothing in those documents that says the benefit is based on investment or ROI.
Who wrote this up? I see the words "contract" and "guarantee" but you say it's not? Is it even a legal contract?"
Question 5: Duh. There's risk when you invest. The market goes up and down, so why are you surprised that the trust fund has shrunk?
Parent after parent spoke about buying the PACT contract even as they knew they could put the money in the stock market themselves and invest it individually. But this was sold as a guarantee. It was the low risk option.
When you invest yourself, you have control over where the money goes. But PACT contract holders don't. The program is managed by the board and "professional" managers. Who would have believed that these people would put the money in high risk investments and squander half of it?
Let me quote one of the parents who spoke at the meeting. I don't have her on video because I was running out of video space, but I noted her words:
"We didn't invest with Bernie Madoff. We are the people who put education first. We live within our means and pay our bills. It's time to stand for Middle Class America. We played by the rules and took the prudent course. And now we'll be left with nothing".
Question 6: Aren't the PACT parents just expecting taxpayers to pay for their mistakes?
How can the state credibly say it's not responsible?
To repeat, these parents were NOT taking risky chances or going for wildly inflated returns. This program was sold as the fail safe option. People bought contracts knowing they might could make more money on their own, but went for the guarantee.
Question 7: Look at the PACT documents on the Web site. They contain clear and specific disclaimers about the risk. What didn't you understand?
What many people new to this issue don't understand is that the documents have changed over time and without any publicity from the PACT board.
Actually, it's hard to get any information out of the PACT board. They have so far refused to release the minutes of their meetings over the past few years where investments were discussed.
The early PACT contracts (at least through 1994) clearly guarantee tuition. By 2001, that had been removed, and now, the documents are crystal clear about the risk. As another blogger noted, they're so doom and gloom that "you'd have to be an idiot to buy a contract now."
But what you see now isn't what tens of thousands of families saw when they signed their contracts and paid their money.
And I have a question for the PACT board, the state, and the naysayers, who call us dumb or whiners for wanting the state to live up to its promises.
There's starting to be a good bit of evidence uncovered that this money wasn't managed prudently. Remember that the PACT contract holders had no knowledge or influence on investments - that was completely handled by the state-appointed board.
If state officials don't perform the necessary oversight and live up to their fiduciary responsibility for a program worth about half a billion dollars and affecting tens of thousands of families, then are we supposed to shrug our shoulders and say "darn stock market" and just walk away?
Is this how you want your state government to function? Where's the responsibility and accountability?
The PACT contract holders lived up to their end of the bargain. It's time the PACT board showed us that they feel some sort of responsibility to live up to their side of the deal as well.
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