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State treasurer's office candidates investigate expanding MOST program

October 05, 2000
By: Lauren Shepherd
State Capital Bureau

JEFFERSON CITY - Missouri parents would have more investment options for their childrens' college education under plans being developed by Missouri's state treasurer as well as candidates for the job.

Both the current state treasurer and the candidates for the office say they plan proposals to expand the state's college savings program--Missouri Saving for Tuition (MOST). With the economy and the stock market booming, state program managers say these ideas reflect a nationwide trend to provide more flexibility in college savings plans.

MOST is one of 36 college savings programs nationally. Developed under state treasurer Bob Holden -- the Democratic candidate for governor -- the program allows parents and guardians to invest up to $100,000 in tax-deferred savings accounts.

The accounts are managed by an investment firm that holds the money in stocks, bonds and money market accounts. The percentage of funds that are invested in each type of option is determined according to the child's age.

Chris Hunter, College Savings Plans Network program manager, said plans like Missouri's have become more and more popular nationally.

"We've seen a number of states recently start savings plans," Hunter said. "It may be due to the bull market."

The programs began appearing after a change in the IRS code in 1997 let states create savings programs allowing money to be invested. But each state invests the money differently.

In Missouri's plan, for example, for the parent of a newborn, 75 percent of the money in the account would be invested in stocks, while 25 percent would be in bonds and zero percent in money market accounts. Stocks are considered the riskier investments while money market accounts have the safest returns.

As the child gets closer to college age, the percentage of money invested in stocks drops while the money held in money market accounts and bonds increases.

Holden and several other Missouri candidates recently have discussed expanding the plan to allow parents to invest all their money in stocks--an option called 100 percent equity.

Hunter said more and more states are turning to this option since investing in the stock market has become mainstream for certain types of people making more money than average.

"It's really for people in different income brackets," he said. "The higher the income, the less risk-adverse people are."

Although stocks historically yield higher returns, a person could be taking a big risk by investing solely in stocks. Tom Pinto, media relations director at TIAA-CREF, an investment firm that manages several states' plans, including Missouri, said people could potentially lose more money than they put in.

"With 100 percent equity, if your child is ready to go to school, you could get out less than you put in," especially if you have only been in the program for a short period of time, Pinto said.

The treasurer's office has not yet released the details, but spokesperson Vernice Givens said they are "looking at a new investment option that adds flexibility."

Meanwhile, Democratic state treasurer candidate Nancy Farmer also is developing a plan to expand the MOST program that includes a riskier investment option.

"There's been an interest in higher risk, higher return options," said Farmer spokesman Chuck Miller.

Miller said Farmer's ideas also include adding a scholarship program for lower income students and marketing the program to people with newborns.

Miller said Farmer will release the plan's details later this month.

On the other hand, Republican state treasurer's candidate, Todd Graves, a prosecutor from Platte County, has proposed adding a tax credit into the program for families with lower incomes.

Since the plan now gives participants up to an $8,000 annual state tax deduction depending on their tax bracket, Graves has proposed giving a tax credit to families that don't qualify for the deduction.

"If you don't pay any state taxes, a state tax deduction doesn't help," Graves said. "We want to have lower income families thinking of saving for their child's education."

Any changes to the program would have to be approved by the legislature.

Patrick Lynn, former policy director for the state treasurer and writer of the original MOST legislation, said other states have copied Missouri's program in the past and will continue to in the future.

"When we wrote our law, everyone else in the country had made a mistake" in their savings programs, Lynn said. "It's the perfect example of the Show Me State. Other states are going with what we have."

In fact, Hunter said seven states already allow parents to invest all the money in their college savings accounts in stocks, including Kansas, Illinois and Indiana.

Indiana, for example, introduced a 100 percent equity option in July 99.

"For a lot of people then, that was their choice," said program executive director Susan Loftus. "It gives parents and their students more options about where to attend school."