April 2009

OPEN LETTER from TREASURER BEN WESTLUND

Dear 529 Investor:

Since taking office as Oregon State Treasurer on January 5, my top priority has been improving the options and the accountability of Oregon’s 529 college savings program. As the chairman of the Oregon 529 College Savings board, I have already made several changes -- such as terminating underperforming funds.

Now, I am taking another step on your behalf.

After a thorough, three-month investigation, in April I asked the Oregon Attorney General to file a lawsuit against OppenheimerFunds Inc., the investment manager of the Oregon College Savings Plan and the OppenheimerFunds 529 Plan.

The investigation revealed that OppenheimerFunds was not acting in the best interests of participants in the Oregon plan.

We are suing for breach of contract and fiduciary duty, negligence, misrepresentation, and violation of the Oregon Securities Law. We are attempting to recover at least $36.2 million that was lost to plan members as a direct result of OppenheimerFunds’ decision to place Oregonians’ college savings in a bond fund that changed from a conservative bond fund into a fund investing in highly aggressive and risky investments.

Oregonians were doing the right thing by saving for college, but unknown to them or the Oregon 529 College Savings Board, money in the OppenheimerFunds Core Bond Fund was invested in ways that were plainly inappropriate for those saving for college – or already in college.

The market’s nosedive in 2008 made it a tough year for almost every type of investment. We cannot sue the market for going down.

But OppenheimerFunds’ negligence and breaches of contract and fiduciary duty ultimately made losses more severe for many investors in the Oregon 529 plan. If you were invested in an age-based or lifestyle fund administered by Oppenheimer, you were partly exposed to the Core Bond Fund.

I do want to assure you that there will be no interruption in plan services because of this lawsuit. Your account will not be frozen. The plan will operate as usual, and you will continue to receive the same services that are now available. As an investor, you can continue to make contributions to your account and conduct any other account transactions that you deem necessary.

In addition to seeking a legal remedy, I have been taking action through the Oregon 529 College Savings Board, of which I became chair when I became State Treasurer. In that capacity since January, I have proposed and gained approval for a series of changes that will increase accountability, increase options and reduce market exposure for risk-averse investors.

To strengthen accountability, the Board replaced two Oppenheimer bond funds including the Core Bond Fund and accelerated the process to select a new overall manager for the Oregon College Savings Plan. We are in the process of soliciting bids now. Also, I have instructed the investment division of the Office of the State Treasurer to provide an added layer of oversight.

To increase options, the Board approved creation of a new suite of age-based portfolios that will invest in index funds, which closely track specific markets and have lower fees than actively-managed funds. We also voiced support for legislation that would create a prepaid tuition option.

And to reduce market exposure for risk-averse investors, the Board agreed to research a FDIC-insured option.

Finally, I am trying to spark new flexibility and options at the federal level. I am working with U.S. Senators Ron Wyden and Jeff Merkley and Oregon legislative leaders to amend federal tax laws to, for the first time, give families the ability to pay off short term college loans with 529 funds. That could help families with children in college or on the cusp of college, because they could wait for markets to hopefully recover -- which would also rebuild their 529 account values. Then, they could repay those loans.

College is important, and it’s getting increasingly expensive. That’s why tools like 529 savings plans are important – and why those programs need to be the best possible.

You are my first and most important priority. I will continue to propose changes to make the Oregon 529 College Savings Network stronger and more accountable. And I will keep you informed about Board actions and the lawsuit.

Sincerely,

Ben Westlund
Oregon State Treasurer

PS. Please visit this website to obtain updates and information.  And as always, please contact my office if you have specific questions or comments.