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Entries in Government Accountability Office (3)

Wednesday
Jan022013

Federal College Savings Plan Primarily Helps the Wealthy, Study Finds

iStockphoto/Thinkstock(NEW YORK) -- A federal plan meant to help families save for college tuition is overwhelmingly benefiting wealthy families, a federal review has found.

The financial instruments, known as 529 college savings plans, contribute to a billion dollar industry but are utilized by less than 3 percent of families with college students, according to a study released last month by the Government Accountability Office.

And those families, the GAO found, were almost exclusively wealthy.  Families that did have a 529 plan or a similar investment vehicle for college savings had 25 times the median financial assets of families that did not and three times the median income, the GAO said.

Although 529s were created to help families of all income levels be able to afford college, Laura Lutton, director of 529 plan research for investment firm Morningstar, said, "This research suggests that's not the primary use of the plans."

The plans, named after Section 529 of the Internal Revenue Code in 1996, allows parents or grandparents to set up a savings plan for a child right at birth.  In 2001, the federal government allowed distributions from 529 accounts to be entirely tax-exempt if used to pay for college tuition and fees, which have been increasing at a rate of 6 percent.

Lutton said it will be interesting to see how lawmakers in Washington respond to the report.

The foregone federal revenue from college savings plans is about $1.6 billion, according to the Treasury Department in the fiscal year of 2011.

"The fact that wealthier families are taking advantage of these in larger numbers shows it's not a vehicle that is as widely used as many would think as a goal in the industry," Lutton said.

Lutton said she was not entirely surprised by the GAO's report, as she had heard anecdotally about the average account size and customers.  She also said previous research showed that about 51 percent of 529 plans are sold directly to individuals while 49 percent are sold through a financial adviser.

"If you are working with a financial adviser, there are some financial means there.  If that's half the assets in the industry, I think one could logically conclude that is why you see so many wealthy families utilizing the investments," Lutton said.

The report points out that higher income households tend to benefit more from the tax-free earnings from a 529 plan because of their higher tax rate.

The GAO report said that some of the primary reasons preventing families from participating is their ability to save, awareness of 529 plans as a savings option and difficulty in choosing a plan.

In addition, some families are concerned that saving greater amounts of money for college may impact potential financial aid for their child.

Copyright 2013 ABC News Radio

Friday
May112012

Not a Joke: Government Issues Study of a Study About Studies

Digital Vision/Thinkstock(WASHINGTON) -- The Pentagon was inundated with so many studies in 2010 that it commissioned a study to determine how much it costs to produce all those studies. Now the Government’s Accounting Office (GAO) has reviewed the Pentagon’s study and concluded in a report this week that it’s a flop.

The study of a study of studies began in 2010 when Defense Secretary Robert Gates complained that his department was “awash in taskings for reports and studies.” He wanted to know how much they cost.

Two years later, the Pentagon review is still continuing, which prompted Congress to ask the GAO to look over the Pentagon’s shoulder. What they found lacked military precision.

The GAO found only nine studies that had been scrutinized by the Pentagon review, but the military was unable to “readily retrieve documentation” for six of the reports.

The Department of Defense’s “approach is not fully consistent with relevant cost estimating best practices and cost accounting standards,” the GAO concluded. In fact, they often did not include items like manpower, the report found.

The Pentagon “partially concurs” with the GAO’s report.

The cost of the study about the study of studies was not immediately available from the GAO.

Copyright 2012 ABC News Radio

Thursday
Oct202011

Federal Reserve Board Rife with Conflict of Interest, GAO Report

iStockphoto/Thinkstock(WASHINGTON) -- The makeup of the Federal Reserve’s board of directors poses a conflict of interest and there is concern that several financial firms and corporations could have reaped monetary benefits from their executives’ close ties to the Fed, according to a new report released Wednesday by the Government Accountability Office.

In one case, the Federal Reserve consulted with General Electric on the creation of a commercial paper funding facility and then provided $16 billion in financing to the company while its chief executive, Jeffrey Immelt, served as a director on the board of the Federal Reserve Bank of New York.  Immelt is now President Obama’s “jobs czar.”

JP Morgan Chase could also have benefited from its chief executive Jamie Dimon’s position on the board of the Federal Reserve Bank of New York, according to the GAO.  The bank received emergency loans from the Federal Reserve at the same time it served as the clearinghouse for the Fed’s emergency lending program.

The Federal Reserve gave JP Morgan Chase an 18-month exemption from risk-based leverage and capital requirements in 2008, the same year that the Fed gave it $29 billion to acquire Bear Stearns, according to the GAO.

Similarly, Lehman Brothers’ chief executive Richard Fuld served on the board of the Federal Reserve Bank of New York at the same time one of its subsidiaries participated in the Fed’s emergency programs.

The Federal Reserve system has come under increased scrutiny in recent years, particularly for the structure of its board of directors.  Executives of banks and companies that are regulated by the Fed, and that receive emergency funding from it, often serve on the board.

“Without more complete documentation of the directors’ roles and responsibilities with regard to the supervision and regulation functions, as well as increased public disclosure on governance practices to enhance accountability and transparency, questions about Reserve Bank governance will remain,” the report states, adding that such affiliations “could create reputational risk for the Reserve Banks.”

The GAO did state that it “did not find evidence that Reserve Bank boards of directors participated directly in making any decisions about authorizing, setting the terms of, or approving a borrower’s participation in the emergency programs.”

Federal Reserve Chairman Ben Bernanke said in a letter to the GAO that the bank will consider ways to amend the bylaws to clearly explain the role of the directors.

Copyright 2011 ABC News Radio







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