Six people are suing the Education Trust Board of New Mexico, claiming it mismanaged two tax-sheltered funds they used to save money for their children's education.

Lawyer John Bienvenu, who filed the class-action complaint in state District Court on Thursday, said the six have lost "significant" money in the Education Plan and the Scholar'sEdge Plan — both of them so-called 529 plans managed by the state.

According to the complaint, both plans offer a range of options — more aggressive portfolios vested in all stocks or equities for younger students with at least 10 years before they start college, and more conservative portfolios with more fixed-income and money-market investments for those approaching their freshman year.

The most conservative one — called the "School Years Portfolio" for those already attending college — was designed to protect the principal by investing 10 percent in equities, 50 percent in fixed income and 40 percent in money market.

Under the state's "aged-based approach," the money in the account is supposed to shift to increasingly conservative portfolios as the beneficiary ages. Yet according to the complaint, the "overwhelming majority" of funds in the School Years Portfolio went to three Oppenheimer Fund fixed-income assets that "performed miserably," losing about 40 percent of their value in recent months.

"The reason for this shocking performance was not bad luck or the overall performance of the market," says the complaint. "Even in a challenging market, the fixed-income benchmarks that the State selected as fair comparators managed to make money. Instead the State's fixed income holdings imploded because the State, presumably upon the advice of its Program Manager, placed and retained Trust assets in 'fixed income' holdings that were the very opposite of traditional, conservative investments. ...

"In a true long-term investment, it is sometimes possible to 'wait out' a dip in the market. But here, Plan enrollees cannot 'wait out' mismanagement of the Trust unless the intended beneficiary foregoes her higher education — which would defeat the entire purpose of the Trust."

Peter White, who as Cabinet secretary of the state Higher Education Department chairs the Education Trust Board of New Mexico, and Ross Burkstaller, program manager for Oppenheimer Funds, a state contractor that is not named as a defendant, were not available for comment Friday.

"They took money that was meant to be invested in the most conservative instrument to protect the principal but would not have any upside potential for gain, they took that money and they invested it, half or more of those funds, into extremely speculative and risky investments that ended up losing more than 40 percent of their value," Bienvenu said.

The plaintiffs include Ping Lu of Albuquerque, Jill and Richard McKeon of Los Angeles, Stephen Spencer of Sandoval County, Spencer Stopa of Otero County and Judy C. Winnegar of Santa Fe. Co-counsel to the Rothstein, Donatelli, Hughes, Dahlstrom, Schonburg & Bienvenu firm in the case is the Keller Rohrback firm of Seattle.

"We're asking for a return of the losses that the individuals suffered as a consequence of having these very conservative portfolios invested in risky investments," Bienvenu said. "We're also asking for the court to order the state to divest itself entirely from those risky investments and put them into appropriate investment vehicles."

Contact Tom Sharpe at 986-3080 or tsharpe@sfnewmexican.com.