529 Savings Plans Respond to Complaints

Physician's Money Digest, May 2006, Volume 13, Issue 5

Wall Street

Journal

Several state-sponsored 529 college savingsplans have switched their investmentofferings to low-cost alternatives inresponse to complaints of high fees.According to an article in the , a persisting problem has been that529 plans have large numbers of smallaccounts, causing higher fees per accountto cover fixed administrative costs, such asaccounting, mailing, and other fees. Thesecollege savings plans have become so popularsince their inception in the 1990s thatthey contain an estimated $72 billion inassets today. Wyoming's plan, one of thesmallest in the country, has only 1379accounts that hold $16.8 million. Yetinvestors in this 529 savings plan pay doubleor triple what investors pay in otherstates—2.4% of assets—for a limitedchoice of high-cost mutual funds. This percentagealso includes 0.9% for stateimposedprogram fees. Vanguard, knownfor its low-cost index funds, has been makinga push into the 529 market. It hasassumed management for 529 plans inArkansas, Colorado, and New York over thepast several years, and manages a total of$10 billion in 529 plans, including Iowa,Louisiana, and Nevada. Vanguard's lowerfees have created ripples in the market.According to the article, Maryland renewedits contract with T. Rowe Price this fall afternegotiating lower fees. A dozen other stateshave also reduced costs for their 529 collegesavings plans.