April 24, 2003

Governor John E. Baldacci
Office of the Governor
#1 State House Station
August, ME 04333-0001

Re: Repeal Temporary Legislation Taxing Certain Section 529 Plan Withdrawals

Dear Governor Baldacci:

The Investment Company Institute¹ strongly supports initiatives that encourage Americans to save more to meet their long-term needs, including the education needs of their families. Section 529 plans, such as the Nextgen College Investing Plan, have proven to be excellent college savings vehicles. A major reason for the attractiveness of these plans is the 2001 federal tax change² that excludes from income the earnings portion of any withdrawal that is used for qualified higher education expenses.

The vast majority of states have conformed to the federal tax exemption for qualified section 529 plan withdrawals because the states recognized the importance of encouraging saving for college education. Among other things, conformity simplifies tax compliance and eliminates unnecessary confusion for investors (as federal tax conformity is available regardless of the section 529 plan in which the taxpayer invests).

While Maine initially conformed to the federal change, the state recently reversed its position in LD 1319 and "deconformed" for withdrawals made during 2003, 2004, and 2005-unless the withdrawal is from a Maine-sponsored plan. This recent change will have negative consequences on the efforts of Maine residents to save for the educational needs of their families, including confusion that will arise from the limited, short-term nature of the change.

The fiscal challenges that Maine and other states face are significant and the avenues for funding state operations are not always attractive. However, the pro-saving and pro-simplification benefits that federal tax conformity on withdrawals provides to Maine residents significantly exceed the approximately $14,000 per year that would be saved by the recent legislative change.

Because of the importance of section 529 plans to Maine residents, and your solid commitment to education and to initiatives designed to ensure greater access to higher education, we respectfully request your support to promptly restore federal conformity to Maine law during the supplemental budget process by reversing the changes made by LD 1319.

Sincerely,

Matthew P. Fink
President

cc: Dale McCormick
Jane Lincoln
Rebecca Wyke

¹ The Investment Company Institute is the national association of the American investment company industry. Its membership includes 8,935 open-end investment companies ("mutual funds"), 559 closed-end investment companies, and six sponsors of unit investment trusts. Its mutual fund members have assets of about $6.382 trillion, accounting for approximately 95 percent of total industry assets, and 90.2 million individual shareholders.

² This legislation was entitled the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA").