Unveils Top Trends in 529 Plans

Share Article, an independent authority on Section 529 college-savings plans, has identified four major trends occurring in 529 plans around the country that have improved the attractiveness of these tax-advantaged investment programs.

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Some in the 529 industry are saying fees in the lowest-cost plans have gone about as low as they can possibly go, and I tend to agree with that unless, of course, the states begin subsidizing their program operations.

With Section 529 college-savings plans resuming a growth trajectory in the wake of 2008’s market downturn, several trends have taken hold among the states that administer these programs, according to, an independent think tank and leading information resource on 529 plans and other ways to save and pay for college. Here are the top four trends:

Lower fees and expenses

Competition among investment firms seeking to manage 529 program assets has led to aggressive fee cutting, benefitting the participants in these plans. Based on's semi-annual 529 Fee Study, the total ten-year cost of a $10,000 investment in a 529 plan’s least expensive option has dropped by one-third, on average, over the last four years, decreasing from $862 in August 2007 to $570 in August of this year. These figures include not only program manager fees and annual account maintenance fees, but underlying mutual fund expenses as well.

“Fees and expenses started dropping back in 2003, but it’s only been since 2007 when OppenheimerFunds took over in Illinois that we’ve seen a real ‘race to the bottom’ among the larger 529 plans,” according to Joe Hurley, founder of “Some in the 529 industry are saying fees in the lowest-cost plans have gone about as low as they can possibly go, and I tend to agree with that unless, of course, the states begin subsidizing their program operations.”

Increased risk management

The battering suffered by many 529 plan accounts during 2008 and early 2009 has caused states and their investment managers to look for new investment options like bank CDs and savings accounts that can better protect investor capital. They are also making adjustments to existing age-based investment options to hold up better in market downturns.

“Before 2008, FDIC-insured bank products were available through only five states: Arizona, Hawaii, Montana, Ohio, and Virginia,” says Hurley. “Now you can find them in 16 states.” Hawaii no longer offers an FDIC-insured option in its 529 plan.

Furthermore, says Hurley, many 529 plans now offer more than one age-based investing track. A very conservative investor in one of these plans might select the track that shifts completely out of the stock market by the time their child leaves high school, while a more aggressive investor might select the track that stays partially invested in stocks right through college.

Rhode Island has recently announced a volatility management feature in the age-based investment option in its CollegeBoundfund 529 plan, providing investment managers from AllianceBernstein with limited discretion to ratchet down the allocation to stocks whenever market conditions warrant. Utah now allows its 529 plan participants to create their own customized age-based tracks.

Index funds and ETFs

Index funds have become commonplace in the direct-sold 529 plans in recent years, primarily due to the lower expenses in index funds as compared to actively-managed mutual funds. Most states have turned to Vanguard for its index funds but other fund companies including Fidelity, TIAA-CREF, and T. Rowe Price have placed their own index funds within the 529 plans they manage. Most advisor-sold 529 plans still use actively-managed funds in their portfolios, although the iShares 529 Plan sponsored by Arkansas is a program available through financial planners that features a lineup of indexed exchange traded funds (ETF).

Multi-manager investment portfolios

Several states using actively-managed funds in their 529 plan portfolios have changed their investment platforms from single-manager to multi-manager in the belief that investors are seeking greater diversification in plan offerings, and that the ability to select “best of breed” investment managers can lead to better returns. Fidelity Investments has recently added a multi-manager age-based option in four of the states where it manages 529 plans; TIAA-CREF has turned to a multi-manager approach for the plans in Connecticut and Oregon and will do so when it takes over the California plan this year; and OppenheimerFunds-managed plans in New Mexico and Texas are now on multi-manager platforms.

About half of advisor-sold 529 plans are multi-manager while the other half remain single-manager plans.


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Marie Osypian
JFH Innovative LLC
(585) 286 - 5426
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