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[Abe Kohen]

Deciphering 529 Plan Fees Is Tough Assignment

By JANE J. KIM
DOW JONES NEWSWIRES
March 24, 2004 9:28 p.m.; Page D2

NEW YORK -- Trying to get a handle on the fees you might be paying to invest
in a state-sponsored 529 college-savings plan can be an education in and of
itself.

For one, investors often have to wade through lengthy program disclosure
documents to find information about fees. Expenses and reporting standards
can also vary widely across plans, making direct comparisons difficult.
Although families should consider other factors such as investment returns
and state tax benefits, the level of fees can become a critical concern
given a limited investment window and a more-conservative asset allocation
as the child nears college.

Regulators are paying closer attention to these plans. The Securities and
Exchange Commission recently set up a task force to examine concerns over
529 plans, and the National Association of Securities Dealers is
investigating securities firms for possible misconduct in their sales of
these plans.

For their part, plan administrators could do more to highlight fees and
present that information more clearly, experts said. Brokers could also be
required to disclose total fees and information on how their plans stack up
against others. Although the SEC doesn't have direct regulatory authority
over 529 plans, which are state-issued securities, it does have the ability
to regulate the brokers who sell them. The Municipal Securities Rulemaking
Board, or MSRB, also has jurisdiction over the broker-dealers who sell these
plans.

Recently, the SEC proposed rules that would require brokers to tell
customers about any distribution-related costs they could incur in a
point-of-sale statement they would get to read before signing on to the
plan. Typically, such transaction costs are found in offering statements or
in "confirmation" notices they get after they've invested in the plan.

But until states and plan administrators come up with a standardized way to
disclose 529 fees, the onus will be on investors to do their homework. In
addition to studying the plan documents, investors who are buying the plans
directly should call up the sponsoring state, which will walk you through
all of the potential costs.

Several states charge a one-time enrollment fee to open an account, while
other states levy an annual maintenance fee, which you could avoid if you
sign up for automatic deposits from your bank account or if you maintain a
minimum account balance. When you open up an account with the Maryland
College Investment Plan, for example, you'll pay a $90 enrollment fee and
then $30 annually, which is waived if your account balance exceeds $25,000,
or if you enroll in an automatic-payment plan.

The largest expenses and the trickiest to understand are the plan's
program-management fees and the underlying fund expenses. Program-management
fees are typically asset-based fees that are charged by the outside program
manager and/or the state agency in charge of administrating the plan. The
second type of cost reflects the costs to manage the underlying mutual
funds.

Some plans -- such as the 12 direct-sold plans managed by pension-fund giant
TIAA-CREF -- charge one program-management fee that includes the expense
ratios of the underlying funds. If you invest in the Michigan Education
Savings Program, which is managed by TIAA-CREF, you'll pay an annual
asset-based program-management fee of 0.65%. A fixed fee is simpler to
understand, but it can also inflate expenses for conservative investors, who
will be paying the same expense as investors with more-aggressive asset
allocation, despite the fact that bond and money-market funds generally have
lower expenses than stock funds, said Joseph Hurley, founder of
Savingforcollege.com, a Web site that compares college-savings plans. The
state of Utah, for example, doesn't charge investors anything to invest in
its money-market option.

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