Money Management Executive
Legg Mason, the Baltimore-based investment giant, has dropped out of being an administrator in South Dakota’s 529 college savings plan market in order to concentrate its resources on its two nationwide 529 programs.
As of Sept. 2, the $125 million of assets in Legg Mason’s in-state Core4College 529 Plan were transferred to the state’s other college savings plan, the $565 million-asset CollegeAccess 529 Plan, administered by Allianz Global Investors of Stamford, Conn.
This was the third of three college savings plans run by Legg Mason but the only one that by design was single-state only. Legg also administers the national Scholars Choice Program in the state of Colorado and the national BrightStart Program in Illinois. Citigroup Inc. was the administrator of the BrightStart program, but Legg succeeded it after swapping its broker-dealer operation for Citi’s asset management unit.
The Scholars Choice Program stands to inherit as much as $17 million of assets from Wyoming’s plan, which was run by Mercury Advisors. On July 10, Wyoming officials announced the closing of their College Achievement Plan, to take effect Sept. 18, and recommended that investors consider rolling their assets into the Colorado plan.
“Legg Mason is interested in dedicating its resources to enhance its [Scholars Choice and BrightChoice] 529 plans with deeper distribution,” said Heather Guthmann, a Legg spokeswoman.
“It wouldn’t surprise me that Legg simply needed to choose which plan it wanted to align itself with, that is, if this was a decision made by Legg and not South Dakota,” said Burt Baker, the founder and director of research at Investforcollege.com in Williamsburg, Va.
The Core4College program dates from 2003, when the State of South Dakota Investment Council (now the South Dakota Higher Education Savings Trust) and Legg Mason devised it. With that plan folded, Legg remains active in the state through the two funds it still offers to South Dakota residents in the Allianz plan. The Legg Mason Value Trust managed by Bill Miller and Legg Mason Special Investment Trust managed by Sam Peters remain on the roster of Allianz’s plan, said Jeremy Leber, the latter’s director of 529 plans.
Allianz has become the sole administrator of South Dakota’s multiple-manager 529 plan, and it is the only nationwide 529 plan Allianz oversees.
The CollegeAccess 529 Plan has thrived despite South Dakota’s lack of an income tax (removing the tax-break incentive that most other state plans can offer) and its rank as No. 46 in terms of population, with 775,933 residents.
In 2002, Allianz (then Pimco) agreed as part of its arrangement to run South Dakota’s 529 plan to fund a minimum of 70 scholarships per year for three years for high-achieving South Dakota students attending state-accredited institutions of higher education. The scholarships promised $2,000 per year for four years.
But changes in the Allianz-funded scholarship program began this fall. Awards made this year are for one-time, $2,000 scholarships. The scholarships are renewable, if funding permits, for students who achieve specified academic goals. The scholarships’ funding is contingent upon a formula tied to the amount of assets in the plan.
Legg Mason is not the only company rethinking its 529 plan offerings.
Last month, Pacific Life and Securities Management and Research of Newport Beach, Calif., the adviser to Pacific Life Funds, announced that they would no longer open new accounts within Arizona’s 529 plan. Neither officials at Pacific Life nor the manager of the Arizona college savings program, returned calls seeking comment.
