WAFF 48 Investigates: Fulfilling the PACT promise - WSMV Channel 4

WAFF 48 Investigates: Fulfilling the PACT promise

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Alabamians invested hundreds of millions of dollars in the affordable-tuition program and watched it evaporate when the stock market tanked. Alabamians invested hundreds of millions of dollars in the affordable-tuition program and watched it evaporate when the stock market tanked.

The State of Alabama promised paid tuition for families' hard-earned dollars through the Alabama Prepaid Affordable College Tuition program, also known as PACT. It proved to be a promise they couldn't keep.

Alabamians invested hundreds of millions of dollars and watched it evaporate when the stock market tanked and tuition prices soared in 2008. But the market has since rebounded to record highs. Would PACT have survived had state stayed the course and not cut off enrollment?

"The stocks that we had were high risk stocks and they took the big plunge," said Patti Lambert.

Lambert purchased six PACT contracts for her grandchildren. After making multiple calls to state officials she invested tens of thousands of dollars. 

"You're telling me that this is guaranteed? And the response was 100 percent: this is absolutely guaranteed," said Lambert.

But in 2008, that guarantee turned to uncertainty and then a nightmare for the Decatur woman and thousands of other Alabamians. The program cut off new enrollees months later.

"Most of the companies we were invested in heavily don't even exist anymore," said Lambert.

Financial planner Alex Smith reviewed the PACT numbers, the market, and all the variables.

"It was a bad time for everybody," said Smith. "Unfortunately it's investments. Very few investments are guaranteed."

Smith said the PACT investments looked no different from a typical investor's portfolio. But Smith said PACT officials' tuition guarantee really hurt investors' options.

"Usually what we would recommend on an individual level, if someone is losing that, is to stay in and stop withdrawing as much," said Smith. "[PACT] didn't have that choice."

Most individuals that stayed in the market are now reaping the rewards, record highs and returns. So Smith was asked: if the state hadn't pulled the plug on PACT, would the program have survived?

"You're looking from how they were invested, to the allocations for all of those things, to how much were they taking out from their lump to feed out every year to feed the colleges, how much they were receiving in. There's no way to know," said Smith.  

"After you lose over $700 million in a summer, it is pretty hard to gamble with people's lives," said Lambert.

The PACT Board of Directors restructured in 2010. Lambert now serves on it along with other PACT investors. The group meets quarterly and their decisions are now transparent for all to see.

"39,000 students are still affected by this program," said Lambert.  

The Alabama State Supreme Court has ruled all PACT contracts guarantee only 2010 tuition levels. A student is on the hook for the remaining amount despite the state's previous guarantee. Lambert still questions if the state made the right move by cutting off the program.

"There's always that gosh we should have had it, we could have had it, the kids deserve it, the parents paid for it," said Lambert.

It's important to note every PACT participant has never lost a single dollar of his or her investment. What they have lost is the return they were promised. Parents with kids of all ages do have lots of other 529 investing options available for their child's education.

Click here for a complete list with background of the plans, their limitations, and how they are taxed.

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