Over the course of its six-year life, Wyoming's Section 529 college-savings plan has earned little but criticism. For the third consecutive year, the College Achievement Plan heads up Morningstar's annual list of "worst" 529 plans. Meanwhile, Savingforcollege.com, which also rates 529s, gives the plan just two stars out of a possible five. Now the state of Wyoming is calling it quits, BusinessWeek has learned.
By the end of April, 2005, the Wyoming State Treasurer's office plans to announce that it will shutter the plan. Its 1,354 participants will be able to transfer their savings tax-free to another state's 529. Thanks to a deal the state recently reached with Colorado's CollegeInvest 529 plan, Colorado will waive the $20 annual account-maintenance fee it normally charges out-of-state residents on accounts transferred from Wyoming plan participants. The agreement -- which has yet to be signed -- also calls for the $20 fee to be waived on new accounts set up by or for the benefit of Wyoming residents, according to a source with knowledge of the agreement.
It's not surprising that Wyoming is scrapping its plan. With fees of 1.8% to 2.43% of a participant's annual account balance per year, it's among the most expensive of any 529. Investment performance has been uninspiring, with the various investment options up an average of just 2.81% to 5.81% a year over the past five years. The plan is "a no-brainer to avoid," says Kerry O'Boyle, who covers 529s for Morningstar.
With just about $17 million of assets, the plan holds a tiny fraction of the approximately $66 billion in 529s as of Dec. 31. Since it's expensive to administer and market a 529, the fees on small plans tend to be high, says industry consultant Andrea Feirstein, managing member of New York-based AKF Consulting. "It's too expensive to service small plans. For small plans it's hard to achieve critical mass," she adds.
TREND TO REGIONAL PLANS.
Feirstein says the 529 market is ripe for a shakeout. She predicts other small plans, such as Idaho's, may eventually seek mergers with larger ones. "States that are struggling with low participation have to decide what to do," Feirstein says. "I will not be surprised to see additional regionalization."
Industry observers speculate that TIAA-CREF, which manages Idaho's plan, may exit when the state puts the business out for bid later this year. TIAA-CREF recently hiked the fees on the plan's investments by 0.07% to 0.25%. The company's contract with Idaho ran out last month, but it has agreed to continue running the plan though the end of September, when the contract is scheduled to go out for bid. Katherine Miller, a TIAA-CREF spokeswoman, says the company hasn't decided yet whether to bid on the contract, but is "in discussions with the state" about ways to stay on board.