States rework college savings plans
By Sandra Block
USA Today
The past few months have been brutal for state 529 college savings plans. Some became entangled in the mutual fund trading scandal. Lawmakers blasted the plans for charging excessive fees. Regulators started investigating whether some financial advisers steered clients into out-of-state plans because they paid higher commissions.
But don't kick 529 plans to the curb just yet. Several plans have reduced fees, added low-cost options and distanced themselves from scandal-scarred funds. Increasingly, plans are hiring managers from several different fund companies, instead of investing all their money with one fund family. The trend is likely to continue, 529 plan analysts say.
Some recent developments:
• Last month, Ohio's 529 plan added 15 investment options from the low-cost Vanguard group. The new options will be available to investors who invest directly through the program, rather than through an adviser.
Previously, all of the funds in Ohio's plan were managed by Putnam Investments. Earlier this year, Putnam agreed to pay $110 million in fines and restitution to settle charges of improper trading. Ohio will continue to offer Putnam investment options to individuals who prefer actively managed funds.
The Ohio Tuition Trust Authority, which manages Ohio's 529 plan, decided to expand its menu after a survey showed that many parents and grandparents were interested in low-cost investment options that were easy to understand, Executive Director Jacqueline Williams says.
• Wisconsin's EdVest plan has expanded its options to include funds managed by Legg Mason, Vanguard and Baird Funds. Investors have socked more than $129 million in the funds since they were added late last year.
Previously, investors in the plan were limited to funds managed by Strong Financial, which also administers the program. Last month, Strong and its founder agreed to pay $140 million to settle charges of improper trading. Wells Fargo announced it will acquire the tarnished firm's investment assets.
• Earlier this month, the Oregon College Savings Plan signed a contract with Oppenheimer Funds to manage its plan, replacing Strong. Oppenheimer will offer a mix of its own funds and Vanguard funds to plan investors. Fund fees will drop from 1.25 percent to a range of 0.70 percent to 0.99 percent for the actively managed Oppenheimer Funds and 0.45 percent to 0.60 percent for the Vanguard index funds. Oppenheimer is expected to take over the plan in August.
Despite the recent reforms, some plans are still prohibitively expensive. A Morningstar analysis found that some plans' fees and expenses exceed 2 percent of the amount invested.
State plan administrators are working on a voluntary disclosure statement that will make it easier for investors to figure out total costs and compare plans.
In the meantime, look at your own state's plan first. Many states offer tax breaks to residents who invest in their plans, along with lower fees.
