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Rating:Keystone Guaranteed CSP Loses Surcharge Not Rated 5.0 Email Routing List Email & Route  Print Print
Wednesday, August 16, 2006

Keystone Guaranteed CSP Loses Surcharge

by: Sean Hanna, Editor in Chief

The Pennsylvania college savings plan is going on markdown. State officials said that they are dropping a surcharge on tuition credits purchased through the state's prepaid Guaranteed Savings Plan. That move could cut the plan's costs for the plan by 1.8 percent to 12.6 percent.

The fee cuts are a response to the new cash flow positive nature of the program. The dynamic changed when the plan's assets rose even as tuition increases came in under projections. Like retirement plans, college savings plans come in two flavors. The more written about plans, which allow parents to build an account that can be tapped to pay college bills, are similar to defined contribution plans in that the investor carries the liability risks. Prepaid plans allow the saver to purchase tuition credits, which leaves the risk with the state sponsor. The prepaid plans resemble defined benefit plans in that regard.

Pennsylvania officials found themselves in a better funded position than they had predicted. The state added the premium in 2003 after the treasurer found the plan to be underfunded by $52 million. The surcharged was also eliminated once before in 1997. The 13-year-old Guaranteed Savings Plan has about 87,000 accounts with $1.1 billion in assets, according to the paper. Its newer 529 savings plan has $326 million in assets.

Karen Walsh, a senior adviser Pennsylvania's treasurer told the Wall Street Journal that "We've reached the point where we're making money on every new dollar invested rather than losing money."  

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