Data & Research May 15, 2014

Awareness around 529 Plans Backtracks

Nearly three-quarters of Americans do not know that a 529 plan is a college savings tool, according to the annual 529 Plan Awareness Survey from financial services firm Edward Jones.
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In its third year monitoring tax-advantaged college savings awareness, the survey found that only 30% of Americans could correctly identify a 529 plan as a college savings tool from among four potential options, down from 37% during the inaugural 2012 survey.

Greg Dosmann, a principal with Edward Jones, says the substantial reversal is surprising considering the average cost of tuition continues to rise. He points to a recent survey of college pricing from the College Board, which shows that a “moderate” annual college budget for an in-state school for the 2013/2014 academic year averaged $22,826. A moderate budget at a private college averaged $44,750.

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“It seems counterintuitive that the costs of higher education continue to rise while awareness for a vehicle than can make this cost more manageable continues to decline,” Dosmann says. “We like to remind our clients that starting a 529 plan savings program as early as possible will help ease the burden as children near college age.”

Significant dips in awareness occurred regionally, especially in the Northeast (39% awareness in 2014, down from 45% in 2013). The Midwest fell to 30% awareness in 2014, down from 36% in 2013. A notable decline in 529 plan awareness also occurred limiting the sample to mid-income households; among those respondents with a household income between $50,000 and $75,000, awareness dropped from 42% in 2013 to 32% today.

Dosmann says age also seems to play a significant role in awareness level, with those between ages 35 and 54 expressing the highest levels of knowledge about 529 plans. Interestingly, respondents 65 and older showed the lowest levels of awareness, with just 18% saying they knew what 529 plans were. This despite the fact that 529 plans were, Dosmann notes, originally designed so that grandparents and others parties could contribute to college costs.

“Grandparents represent an opportunity when it comes to managing the cost of college,” Dosmann adds. “We recommend that parents look at tackling college savings as a larger family goal, when possible. Talking to grandparents about participating in 529 plans is an excellent way to build assets in a portfolio—and for the grandparents, it's fulfilling and there may be tax advantages as well.”

As part of its effort to raise awareness for 529 plans and college savings techniques, Edward Jones branches across the U.S. are recognizing May 29 as "Save for Education Day.” Branches will be hosting events to educate families about the importance of setting and pursuing education savings goals.

Families are encouraged to contact their local branches to learn more about planning for their children's educational future. More information is also available here.

Compliance May 15, 2014

Hispanic Chamber Finds Negative Impact of Fiduciary Redefinition

The expansion of the fiduciary definition proposed by the Department of Labor (DOL) could potentially impede the ability of small businesses to offer employees retirement plans, says a new study.
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According to “The Impact of the Upcoming Re-Proposed Department of Labor Fiduciary Regulation on Small Business Retirement Plan Coverage and Benefits,” released by the U.S. Hispanic Chamber of Commerce (USHCC) and co-sponsored by Davis & Harman LLP, “far-reaching regulatory changes, like the DOL expansion of fiduciary status, will only impede the ability of small firms to offer their employees retirement plan accounts, thus hindering American workers from saving for a reliable future.”

The authors of the study say, “The DOL regulation is generally expected to prohibit retirement plan providers and the advisers who sell retirement plans from assisting employers in the selection and monitoring of funds in the retirement plan. Instead, employers could either perform the functions themselves or hire an independent expert to do it.”

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When it comes to investment selection and monitoring for retirement plans, the study shows about 67% of plan sponsors rely on a plan adviser or recordkeeper affiliated with a plan provider for support in these areas. This is especially true for smaller companies (i.e., those with between 10 and 49 employees).

The study finds 90% of plan sponsors are “satisfied with their plan’s current investment choices” and 80% say these advisers and recordkeepers are doing “a very good or excellent job in helping in both the selection and monitoring of investments.” On the other hand, around 50% of plan sponsors say they would “do a fair to poor job in selecting and monitoring the investments themselves.”

In addition to potential issues being created in the areas of investment selection and monitoring, the study also finds plan sponsors not only dislike the concept of the DOL regulation, but also feel it may cause them to reduce the retirement-related benefits offered to employees.

For example, the study finds:

  • Nearly 30% of small businesses with a retirement plan indicate it is at least somewhat likely they would drop their plan if this regulation were to go into effect.
  • Nearly 50% of small businesses with a plan say it is at least somewhat likely the regulation would result in them reducing their matching employer contribution, offering fewer investment options, and increasing fees charged to participants.
  • Nearly 50% of small businesses without a plan state the regulation would reduce the likelihood of them offering a plan, with 36% saying it would reduce the likelihood greatly.
  • More than 40% of small businesses without a plan say the regulation would be at least somewhat likely to cause them to charge higher fees to participants and not offer matching employer contributions.

The authors of the study note that because small business owners create nearly two-thirds of new jobs in the United States, their interests are important. The authors also note how Hispanic entrepreneurs are an increasingly important segment of this small business demographic, citing estimates that more than 3.1 million Hispanic owned businesses will contribute in excess of $468 billion to the U.S. economy during 2014.

In contrast, another group representing Hispanics, the Congressional Hispanic Caucus, threw its support behind the DOL’s proposed fiduciary redefinition (see “Congressional Hispanic Caucus Weighs in on Fiduciary Rules”), while calling upon the DOL to ensure participants are protected against misleading or harmful advice.

The study was conducted by Greenwald & Associates and National Research, on behalf of the USHCC, from November 18, 2013 to January 10, 2014. More than 600 retirement plan decisionmakers were surveyed via phone, 505 with defined contribution plans and 102 with other retirement plans. The respondents were decisionmakers in the retirement plan of a company that had been in business for at least two years with more than $400,000 in gross revenue.

A copy of the study can be downloaded here.

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