What are your goals for 2018? I have many. I’m looking for a job, plan to start graduate school in the fall, want to attend a conference in Washington DC and want to spend more time with my friends. All of these things have something in common; they all cost money. That’s why I was excited to learn about the new ABLE accounts that allow disabled individuals to save above the current $2,000 limit (up to $100,000) without the risk of losing our benefits from assistance programs like SSI and Medicaid. However, after reading more about it, I’m finding it’s far from the golden ticket promised to achieve my financial goals.
What are ABLE Accounts?
Federal ABLE account legislation was passed in 2014 after parents of children with disabilities recognized the need to be able to save for their children’s futures. Each state is responsible for creating their own state ABLE program. This review only discusses the New York State ABLE account program, but investors can choose to invest in another state’s program if such program allows out of state investors. In New York State the program is overseen by the State Comptroller’s office in a trust format, with daily management and services provided by Ascensus Broker Dealer Services, Vanguard, and Fifth Third Bank.
Problems with ABLE Accounts
It’s complicated. In order to write this, I had to read the entire 94-page Disclosure Booklet and Participation Agreement as of August 2017 (linked here), and then ask my father, who has a degree in finance, to explain and clarify certain parts. Even he doesn’t understand it entirely, and what he does, he does not support. I’ve pulled out the biggest problems we found but this analysis is not an exhaustive list of program flaws or stipulations. I’ve included page numbers, so you can follow along in the disclosure booklet if you want to read more details.
First, throughout the entire document, it’s repeatedly stated that the program administrators bear absolutely no responsibility for the program’s success or failure. The items we are allowed to invest in are not registered with the U.S. Securities and Exchange Commission (SEC), any other banking or investment regulators or any state (pg. 16). The SEC protects investors by requiring investment companies and banks to follow standardized bookkeeping rules, regulating certain fees, and forcing account managers to act in the best interest of the consumer. If investment companies and banks do break regulation laws, the SEC can also charge fines against the offending institution. Without any protections whatsoever, we, as consumers, have no recourse against those managing the investment. The disclosure book states that NY ABLE, Ascensus, and Vanguard will not compensate any investor for “losses or other claims arising from the official or unofficial acts, negligent or otherwise, of the Program Administrator [or their employees]” (pg. 17). While profits and losses are a typical risk in investing, having no regulations, and not being able to hold anyone accountable for any of their actions, or inactions, is simply unacceptable.
Second, the money put into ABLE accounts can only be used for certain purposes. The program says costs that qualify are “any expenses that (1) are incurred at a time when the Account Owner is an Eligible Individual, (2) relate to the blindness or disability of the Account Owner, and (3) are for the benefit of the Account Owner in maintaining or improving his or her health, independence, or quality of life.” The broad list they provide includes assistive technology and personal support services, education, employment training and support, financial management and administrative services, funeral and burial expenses, health, housing, legal fees and expenses for oversight and monitoring, prevention and wellness, transportation, and other expenses “that may be identified from time to time by the IRS.” Within these categories though, there is not a list of acceptable uses, nor a definition of “quality of life” (pg. 53). Can I buy a plane ticket, an accessible concert or theatre ticket, rent an accessible van on vacation? Or only pay for a bus or paratransit fee to my doctor appointment? We also only must prove our withdrawals are for qualified expenses if the program asks us to (pg. 10). Nowhere does it say where to find such a list of detailed qualified expenses, what the specific criteria is for a qualified expense or even who is responsible for that decision. I could call and ask about a purchase multiple times, and would likely get multiple different answers.
Third, in certain scenarios, individuals receiving SSI or SSDI can still have their benefits curtailed if they use their money to pay for non-qualified disability expenses and/or for housing-related qualified expenses (pg. 18, 65-67). In these cases, using your invested money for such expenses is counted as income and will, therefore, impact your SSI or SSDI accordingly. Why are housing-related qualified expenses treated differently than every other previously listed qualified expense? It’s not justified anywhere, even though the entire point of the program is to keep this from happening.
Fourth, when enrolling in an account, we only have 4 investment options with one company and 1 checking account option with one bank. While there are an aggressive, moderate, intermediate and conservative investment plan and a checking account option, that is it. With the wide range of investment companies, banks, and financial products available, why should we be forced into a monopoly? I also find it concerning that Fifth Third Bank (the institution that controls the consumer checking account option) has had massive data breaches and disability, among other minority, discrimination lawsuits. We should not give our business to a bank that has discriminated against our community, and I’m disheartened NY thinks this is a good idea.
Fifth, the fees to maintain an account are exorbitant (pg. 12). Quarterly fees are the same for each of the four investment plans, despite the different amounts of management each investment requires. If you choose to receive electronic statements and reports about your account your quarterly fees will be $11.25, or $45 for the year per investment option. Should you prefer paper statements and reports you’ll pay $13.75, $55 for the year per investment option. If you want to split up your investments so some money goes into the aggressive option and some go into the moderate option, you’ll be paying $90 to $110 a year in fees. If you don’t earn at least as much as the fees cost in investment growth, you’ll be losing money and defeating the supposed purpose of the program. Fees for similar investments with other providers are generally much lower.
Lastly, there is an age eligibility requirement. As it currently stands, an eligible individual’s disability must be/have been present before age 26 (pg. 20). Given that anyone can become disabled at any time, this is a very arbitrary and discriminatory requirement. What benefit is there to denying people access to a program that’s supposed to increase financial security, and lessen reliance on government handouts?
In its current form, New York’s implementation of the ABLE program is not living up to the spirit of the program. The people we are supposed to trust with our money have ensured we have no recourse against them, even if they engage in illegal practices. We are limited by the investment company and predetermined investment programs and are therefore denied equal access to the free market. Investing in these options can still negatively affect our benefits and the fees are exorbitant. The age 26 eligibility requirement also leaves many disabled individuals out. If the program allows us to have up to $100,000 in our accounts, why won’t they just raise the current $2,000 asset limit and give us the freedom to make our own decisions? NY ABLE could provide free or low cost independent financial advisors to help us determine what companies and options are right for us and approve our decisions. That would protect people from making bad decisions if they aren’t familiar with investing.
Bills have been proposed at the federal level to improve the state program requirements but have all been denied. I urge you to read through all the available information and get professional legal and tax advice when deciding if this program is good for you or not. If you’re interested in seeing my highlighted copy of the disclosure booklet, send me an email. It’s also imperative that we call on our state legislators to improve this program. New York can do better, and they need to work with the disabled community to create a better system that gives us the freedoms other individuals enjoy and we deserve. Until then, I’ll be looking at, and possibly investing in, other state’s ABLE programs that allow out of state investors.
Erin Vallely lives with a rare form of muscular dystrophy and is a proud wheelchair user. Having graduated with a B.A. in Sociology and Anthropology with a Spanish minor from Wells College in Aurora, NY, she plans to pursue a career in disability rights advocacy and possibly politics. In her spare time, Erin enjoys reading about other people’s experiences, supporting other minority groups, and traveling.