An effort by the College Savings Plan Network and others to standardize 529 plan disclosures is a way for fund companies to take the initiative on self-policing of a product that came under Securities and Exchange Commission scrutiny this spring, according to industry observers.
Bruce Harrington, a vice president and the director of product development and marketing at MFS Investment Management in Boston, said the network’s recently adopted 529 plan guidelines are a positive step toward helping banks and mutual fund companies regulate themselves.
The SEC announced in March that it was creating a task force to examine 529 plans, with a close eye on disclosure and costs. Rep. Michael Oxley, R-Ohio, the chairman of the House Financial Services Committee, had written the SEC that 529 plan fees are so high in some states that they outweigh the product’s tax benefits.
The disclosures being examined by the SEC include the release of information about fees and costs, investment performance, federal and state tax considerations, investment options and managers, risk, and limitations or penalties connected with transfers or non-qualified distributions.
The College Savings Plan Network, a trade group run by the National Association of State Treasurers, wants fees to be explicitly outlined in plan materials and managers to include charts and fee structures. “The guidelines will spell out the fees that go back to the state and to the fund manager,” said Mr. Harrington.
He said in an interview Wednesday that he views the guidelines as a byproduct of the mutual fund scandals. The 529 plan industry wants to create the option to self-police before the SEC acts, he said.
There are 85 active 529 plan programs in the country, Mr. Harrington said, and it would benefit investors to be given uniform information.
MFS, which manages a broker-sold 529 plan for Oregon, and participates in 10 other state-sponsored 529 plans, said the guidelines would let investors clearly identify the fees for each state’s plan and compare their features. The Oregon MFS 529 Savings Plan offers 20 investment choices along with three investment paths — age-based, customized, and built-in allocation.
Regarding sales and marketing, Mr. Harrington said, the guidelines would not stifle creativity at the state level. States have many different plan features, he said, and the guidelines would better explain the differences.
MFS has more than $1 billion of client assets that are invested in 529 plans.
Joe Hurley, the president of Savingforcollege.com, a Web site for 529 plan information, said the guidelines will stimulate sales by fund companies and banks that offer the product. They will help eliminate confusion among investors, he said, by simplifying plan selection.
Mr. Hurley said companies are likely to obey the guidelines, which have no enforcement mechanism, as a way to stave off SEC regulation. “It’s an effort to keep the right to self-regulate,” he said.
Creating the guidelines had been under way for a couple of years, Mr. Hurley said, but was accelerated because of the interest shown by the SEC and Congress.
Some providers have taken steps to voluntarily disclose more.
Putnam Investments recently added information to its CollegeAdvantage 529 plan in an effort to disclose more fully the costs associated with it. The statement now includes an example illustrating exact costs, such as annual administrative fees.
