With college savings plans under fire from Congress and the
Securities and Exchange Commission
for their high fees and inscrutability, the organization of state administrators that runs the plans will propose a radical overhaul to industry practices, creating a standardized, user-friendly method that will allow consumers to make state-by-state-comparisons,
The draft proposal is scheduled to be presented Wednesday at a key hearing before the House Financial Services Committee, by Diana Cantor, executive director of the Virginia College Savings Plan and chair of the College Savings Plan Network.
The network is an affiliate of the National Association of State Treasurers, which runs or oversees the 529 college savings plans in all 50 states.
Cantor said the idea is to create easy-to-read tables on the
network's free Web site that would list each plan's fees and illustrate what would happen to $1,000 invested in each plan for one year, concepts now widely in use throughout in the financial services industry.
The possible fees that currently can be charged include: loads or sales fees ranging from 1% to 5.7 %, program manager fees, state fees, annual distribution fees, account maintenance fees, total annual account fees, expense ratios, 12b-1 fees and miscellaneous fees.
Another proposal, she said, would allow consumers to understand the tax consequences of investing in different plans, which vary widely from state to state, but are open to residents of virtually any state.
Cantor said that if the group didn't undertake the changes voluntarily, she believes the SEC will do so through regulation of the broker-dealers, who sell about 75% of the 529 plans.
The plans, which offer tax breaks to families saving for college, have grown rapidly in the past several years, with $40 billion currently invested. However, because they are run by the states, the level of disclosure varies widely.
After Rep. Michael Oxley, (R., Ohio) chairman of the house committee, raised concerns about the savings plans, the SEC earlier this year created a task force to look into how they are structured and sold. Many of the mutual funds available through the Ohio plan have negative returns since its inception.
In a recent memo to Oxley, SEC Chairman William H. Donaldson wrote that the lack of "standardization makes it difficult for parents to compare various 529 plans. As a result, it is difficult to account for differences in performance among many plans."
The 529 plans -- named after a section of the tax code -- were first popularized in the late 1990s and have been touted as one of the best ways for middle-class taxpayers to meet the escalating costs of higher education.