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How Your State Treasurer Can Help Right Now

We talk with Illinois' Mike Frerichs about how the office helps investors.

Editor’s note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.

Karen Wallace: For Morningstar, I'm Karen Wallace. We're fortunate to be joined today by Mike Frerichs, the State Treasurer of Illinois. Treasurer Frerichs is also the chair of the College Savings Plan Network, as well as an active member of the National Association of State Treasurers. And today he's going to discuss some of the ways state treasurers are helping people weather the COVID-19 uncertainty.

Treasurer Frerichs, thanks so much for being here. I hope you're doing well during these unusual times.

Michael Frerichs: Karen, good to be with you. Unusual they are. I am balancing my roles as state treasurer with at-home tutor, all from the home office here in Champaign, Illinois.

Wallace: Please tell us a little bit about what you do as state treasurer. What is it that your office is responsible for?

Frerichs: I guess that's a good question. I'm the state's chief investment and banking officer. We're in charge of managing the state's money, investing it. We do that on a state portfolio of about $13 billion. We help local municipalities and units of government manage their money to the tune of about $6 billion. And then we also help give people the tools they need to invest in themselves, whether that be college savings, retirement savings, or savings for people with disabilities. We have about another $13 to $14 billion there.

Wallace: And I wonder if we can shift gears a little bit here. You're also the chair of the College Savings Plan Network. I wonder if we could discuss some of the issues that you and CSPN are currently addressing? And specifically, I hoped you could weigh in on a reader question we received, from somebody wondering how to handle a college tuition refund if the expenses were paid for with a 529 withdrawal.

Frerichs: There are three things I would say. One, CSPN members are supporting each other. At the outset of this crisis, I encourage all CSPN members to work together to share their stories and collaborate on how best to operate, market, and communicate in these rapidly changing times. So through CSPN meetings and webinars, 529 plans across the country are learning from one another, and helping each other understand the moment we're in, and how we might best serve 529 plan investors. CSPN is providing its members and the public with guidance on recent market volatility. CSPN recently released guidance for 529 investors under the title, "Should I Continue to Save in a 529 Plan During the COVID-19 Market Turmoil?" We think the answer is yes. CSPN recommends that investors keep in perspective that college savings goals are long-term. Staying the course is an essential part of keeping those dreams moving forward. And when considering an investment change or withdrawal, remember that liquidating assets or switching investment may lock in losses if markets rebound.

We suggest they adopt a "do what you can" mantra for college savings. If folks are unable to contribute as they did before, that's okay. However, if possible, even setting aside $5 or $10 a week can add up over time. No can guarantee what the market will look like tomorrow. Keeping the future in mind is important, just as it is with retirement. I think also CSPN is serving as a bridge between Washington, D.C., and the nation's 529 plans.

We're helping 529 plans understand the Secure Act, CARES Act, and other federal legislation. For example, CSPN is working with Treasury to clarify the tax treatment of student loan payments for a beneficiary's sibling. 529 plans need to clarify to whom the 1099-Q form will be issued.

NAST and CSPN very recently worked to communicate temporary rules changes for refunds, so I think this might be helpful to your caller or person who wrote in. Typically if an account owner receives a refund from a college, the refund must be redeposited into the 529 account within 60 days to not be treated as a nonqualified withdrawal. Treasury recently gave account owners until July 15th to deposit their refunds into their 529. And the College Savings Plan Network is helping 529 plans understand this rule change, and communicate it to accountholders.

Wallace: Let's discuss some of the other programs and resources that are available through your office that can help people. You mentioned college savings. What are some other programs that the state treasurer offers?

Frerichs: Charitable trust is another program we have. We decided to give organizations more time to apply for grants. We have about $375,000 available for the spring cycle through the Charitable Trust Stabilization, given the impact of COVID-19. We've extended the application deadline until April 30th for nonprofits to submit their paperwork.

We also find ourselves in the middle of Financial Literacy Month. While Illinoisans are under shelter-in-place due to the COVID-19 pandemic, we've launched the Financial Literacy Month resources page at our website. During these times of e-learning, which those with kids are very much aware of, my team and I want to make sure that teachers, children, young adults, parents, seniors, and all families in Illinois have free access to a wide variety of financial education resources and programs. Tools and resources are offered around topics including money-minded curriculum, student loans, saving for college, mortgage issues, debt, avoiding fraud and reporting scams, and retirement savings planning.

Wallace: You're an active member of the National Association of State Treasurers. What are some other ways that state treasurers are reacting to COVID-19, and what resources related to the CARES Act are available to people across the country?

Frerichs: Great. I know not all of your listeners will be in Illinois, but it's nice to know that NAST, the National Association of State Treasurers, is helping the members navigate this crisis and continue to gather and host resources around NAST advocacy, legislative updates related to COVID-19, and guidance on relief funding and aids. State treasurers have been working closely with their federal, state, and local partners to ensure that critical business and investment functions, while providing relief programs and financial education resources for American families and workers.

We have links that we have available from California, Massachusetts, Utah, that could provide an example. Our California state treasurer has some resources out there. I think most treasurers have something.

But we've also come together in terms of advocacy. On April 19, or April 14, I think it was, I joined four state treasurers--Pennsylvania Treasurer Joe Torsella, Delaware's Treasurer Colleen Davis, Rhode Island Treasurer Seth Magaziner, and Colorado Treasurer David Young--to call on manufacturers of ventilators to release service manuals to repair ventilators for the duration of the coronavirus pandemic. Without this critically important information, hospitals are unable to make repairs to ventilators, rendering them unable or unusable during a time of dire need.

Wallace: Treasurer Frerichs, thanks so much for being here and taking the time to answer our questions. We really appreciate your insights.

Frerichs: Great. Karen, thank you very much.

Wallace: For Morningstar, I'm Karen Wallace.