Data & Research April 23, 2009

Ohio 529 Plans: Both the Best and the Worst

The state of Ohio’s two 529 college savings plans earned spots at both ends of the spectrum in a new Morningstar national ranking of 529 programs.
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A Morningstar news release said Ohio’s direct-sold CollegeAdvantage plan was named as one of the country’s best while its Putnam CollegeAdvantage was listed as one of the worst.

CollegeAdvantage got its kudos because of its “sensible” age-based options, active and index strategies, low fees, and “generous” tax deductions for in-state residents, according to the release. Because the state of Ohio manages CollegeAdvantage, it has the flexibility to create a lineup of offerings from numerous fund families, Morningstar said.

The Putnam CollegeAdvantage appeared on the Worst list for the second year in a row. Morningstar commented: “Despite lowering fees and adding non-Putnam funds to its lineup during the past year, it still relies heavily on Putnam funds, which have been hampered for several years by high manager and executive turnover and poor performance.”

“2008 was a terrible year for 529 plan investors,” said Greg Brown, Morningstar mutual fund analyst and author of the study, in the release. “In recent years, the industry made strides by lowering fees, improving investment options, and closing down poorly structured plans. Last year, however, we saw too many plans that were overly aggressive with their investment strategies as students approached college, and plans that stayed loyal to strategies that just weren’t working.”

Kudos to Virginia

Also at the top of the list were Virginia’s two plans, Education Savings Trust and CollegeAmerica, which earned Morningstar’s accolades two years in a row.

“Virginia Education Savings Trust is managed by the state of Virginia, rather than a fund company, which gives the plan the freedom to choose among different fund families,” Morningstar said. “The fund also offers a mix of index and actively managed age-based portfolios, as well as healthy state tax breaks and low costs. Virginia CollegeAmerica returns to the Best list with its lineup of high-quality American Fund funds with broad asset class exposure and low fees.”

Further, Morningstar said, its “longtime favorite” Utah Educational Savings Plan Trust returns to the Best list for its low costs, strong lineup of Vanguard Group index funds, and the flexibility offered by five age-based options. Indiana CollegeChoice 529 Direct Savings Plan debuts on the Best list with strong underlying funds, broad asset class exposure, prudent age-based portfolios, and customization options.

At the other end, Morningstar said two Nebraska 529 plans appear on the Worst list this year. Nebraska AIM College Savings Plan makes its fourth appearance in a row as a result of its high fees and lack of fund options. Nebraska State Farm College Savings Plan joins the Worst list not only because plan administrators chose precisely the wrong time to invest heavily in Oppenheimer bond funds, but also because the state still hasn’t done anything to address the problem (see “College Savings Plans Hit Hard by Oppenheimer Fund Loss“).

The Lists

Best 529 College Savings Plans (name, program manager):

  • Ohio CollegeAdvantage, Ohio Tuition Trust Authority
  • Utah Educational Savings Plan Trust, UESP Trust
  • Indiana CollegeChoice 529 Direct Savings Plan, Upromise Investments, Inc.
  • Virginia Education Savings Trust, Virginia College Savings Plan Board
  • Virginia CollegeAmerica 529 Savings Plan*, American Funds

*broker-sold

Worst 529 College Savings Plans (name, program manager):

  • Ohio Putnam CollegeAdvantage*, Putnam
  • Nebraska AIM College Savings Plan*, Union Bank and Trust Company
  • Nebraska State Farm College Savings Plan*, OppenheimerFunds
  • New Jersey Best 529 College Savings Plan, Franklin Templeton
  • Montana Pacific Life Funds 529 College Savings Plan, Pacific Life Funds

*broker-sold

More information is available here.

 

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