One big casualty of the stock market downturn appears to be the Virginia College Savings Plan. Data released in the Plan’s 2008 annual report indicates that the Virginia Prepaid Education Program (VPEP) is likely insolvent. VPEP is the program that administers guaranteed contracts purchased by individuals to pay for their children’s future college tuition and fees.
According to the annual report, the VPEP investment portfolio declined from approximately $1.54 billion on 6/30/2008 to approximately $1.15 billion on November 14, 2008 (a loss of 26%). Given the decline of the equity and bond markets since mid November, the portfolio may be worth around $1 billion or less today. Liabilities (future college tuition guaranteed to be paid by the plan), however, which totaled approx. $1.9 billion on 6/30/2008, have probably not changed significantly.
Given how much liabilities exceed assets, and the amount that the plan must distribute each year to pay tuition and fees, brings one to the conclusion that, absent a bailout from the Commonwealth, VPEP may be effectively broken.
Today’s RTD tells of how the Virginia College Savings Plan has extended the enrollment deadline for VPEP to attempt to attract new investors. No mention was made of their troubles, and it doesn’t appear that Mike Martz asked. In my mind it is extremely irresponsible to be taking more money at this time given VPEP’s position. As with any insolvent enterprise, taking in more investors may put off the eventual day of reckoning, but only makes the eventual blowup/bailout worse. Each new dollar taken in from contract purchasers is not only an asset, but also a liability. And until VPEP’s future can be assured, it doesn’t make sense to accept more people into the program.
While VPEP is likely several years away from actually running out of money, parents who have purchased VPEP contracts, and those considering doing so, should, in my opinion, contact the Virginia College Savings Plan to inquire as to the soundness of VPEP and the safety of their contracts. There are some safeguards in place to protect contract owners. According to the VPEP offering documents,
State law provides that a line of credit must be included by the Governor in each year’s state budget to cover VPEP’s contractual obligations in the event of a funding shortfall. This provision can only be changed through the annual appropriations process, which would require action by the Virginia General Assembly, subject to the Governor’s veto, and the General Assembly’s ability to override a veto.
So, when you get off the phone with VPEP, you may then want to call your General Assembly representatives.