State Settles Bright Start Fund Losses, College Savers to get 50 Cents on the Dollar

By Kevin Robinson in News on Dec 23, 2009 4:20PM

A little over a month before the Illinois primary elections, State Treasurer Alexi Giannoulias, who is running for U.S. Senate, announced that the state had reached a settlement with OppenheimerFunds Inc. to partially reimburse about 65,000 account holders - at about 50 cents on the dollar. The state's Bright Start Fund was created under Section 529 of the Internal Revenue Code, and allows Illinois residents to set up a college tuition fund without paying taxes on earnings. Giannoulias came under fire for his management of the $2 billion fund after investments made in Oppenheimer's Core Plus Fixed Income Strategy fund lost 38 percent of its value. Core Plus was supposed to be a conservative option for investors, but sustained heavy losses in the financial collapse last year. The bond index that was used to benchmark Oppenheimer's fund rose 5.24 percent in the same period.

Making things worse for Giannoulias, it was revealed on Tuesday that the fund lost more in 2008 than was originally reported. The treasurer's office originally said that the fund only lost $85 million in 2008. But Giannoulias spokesman Scott Burnham said that only accounted for losses from April through the end of the year. When losses from January through March 2008 and losses from January 2009 are included in the sum, the total comes to $150 million. Nevertheless, the settlement "puts [investors] back in the ballgame and will allow Bright Start families to move forward with their savings goals," Burnham said. The treasurer's office has replaced Oppenheimer with fixed-income funds managed by Vanguard and American Century Investments.