If you have money put aside in GET – Washington’s prepaid college-tuition program – and you bought in before July 2015, you should read this story.
On Tuesday, the state board that oversees the Guaranteed Education Tuition, known as GET, plan voted to give folks who bought their units before July 2015 what could be a sweet deal for some: If they roll the units over into the state’s new 529 college investment plan, called DreamAhead, the units now valued at $103.86 apiece will jump in value to $143 apiece.
It’s an increase of nearly 38 percent. For a family with 400 GET units, that’s a jump in value of $15,656. There’s a three-month window to act, which starts June 15 and ends Sept. 12.
This unusual offer is happening because GET has a reserve of nearly $600 million, or 33 percent more than it expects to pay out to its account-holders over time. The investment fund, which is owned by its investors and managed by the state, has grown in part because tuition is rising more slowly than expected, and in part because of gains in the stock market.
As a way to redistribute the gains while also encouraging people to buy into the new DreamAhead plan, the Legislature passed a bill in the last session to give investors an incentive to move their money into DreamAhead.
DreamAhead gives investors a variety of investment options, many of which are tied to the stock market. But the risk is borne by the investor, so a stock market tumble could cause college savings to erode.
As if to underscore that point, on Tuesday the Dow Jones industrial average fell by 400 points. However, as with a 401(k), not all DreamAhead investment options are based on the stock market.
DreamAhead also charges a couple of fees that aren’t part of GET, including a $35 annual fee, a .12 percent manager fee and a .1 percent administrative fee that goes to the state. As well, there are variable fees for the underlying investments, which range from 0.056 to 0.180 percent. (Some other states’ 529 plans charge lower fees.) Legislators hope they can drive down the fees associated with DreamAhead if more people participate.
There’s no fee to open a GET account if you do it online, and there is no annual fee. But expenses are built into the unit price. In any given year, expenses make up about 3 to 5 percent of the unit purchase price, said Luke Minor, GET senior associate director. In addition, for those who buy GET units each month using what’s called a custom monthly plan, there is a 7.5 percent finance charge and a small monthly payment processing fee.
While DreamAhead is like a 401(k), GET works like an insurance plan. The state guarantees that 100 GET units will always be worth the value of tuition and fees at the state’s most expensive public university. When you buy GET units, you pay a premium for them – in other words, you pay more than they’re actually worth right now – assuming that when your child is college age, tuition will have zoomed well beyond the price you paid. One GET unit currently costs $113.
For those who bought GET units before July 2015 and decide not to roll over to DreamAhead, there’s another thing to consider: Those investors could potentially be eligible for up to two adjustments, akin to a stock split, that would increase the number of units they own. But those adjustments won’t happen until after the Sept. 12 rollover deadline has passed.
One of those adjustments is aimed at people who bought GET between July 2011 and July 2015, when the units were more than $117.82 apiece. At one point, the state charged $172 per GET unit, although it has refunded about $20 per unit for those who bought at the peak. The GET managers will make an adjustment to give those investors more units.
After that adjustment is made, the state will look at the fund again; if its funded status is higher than 125 percent, the remaining GET investors may get up to 15 percent more units added to their account.
Finally: It’s also still possible to withdraw all the money you paid into GET, without incurring penalties, between now and Sept. 12, although there are rules surrounding that move, too.
The GET committee sent a letter to its customers explaining that these moves were in the works. GET has also created a website, get.wa.gov/Sb6087, explaining the options.
The state agency that oversees GET is prepared for a lot of people to choose the rollover option. In April, the state investment board took about $1 billion of the fund’s mix of bonds and stocks, and moved it to cash to fund the anticipated DreamAhead rollovers.
It arrived at the unit cash-value price for people who choose the rollover by taking the total eligible assets of $2.04 billion, and dividing it by the number of eligible units of 14.3 million, giving a figure of $143 per unit, which was rounded to the nearest whole dollar.
The state legislation gives GET board the option to adjust the cash unit value three more times between now and Sept. 12, but Michael Meotti, the head of the board, said Tuesday that it was unlikely to need to do that because the large reservoir of cash – amounting to about 46 percent of the total fund – it has on hand.
GET estimates that 57 percent of existing units are expected to be tapped to pay for college tuition by 2021, or earlier, a number that is based on the age of the student for whom the account was set up to benefit, Minor said.