A prominent legislator is hard-pressed to shine a light on loosely regulated sate-sponsored college savings plans, calling on federal securities regulators to draft significant reforms that include improving fee disclosure.

In a July 15 letter to Securities and Exchange Commission Chairman William Donaldson , House Financial Services Committee Chairman Michael Oxley (R-Ohio) urged the chief securities regulator to consider revamping the structure of 529 plans. Oxley noted in the letter that he is particularly concerned with "the lack of consistent transparency of fees and performance, the oversight of the plans and reports that high fees may effectively eliminate the plans’ tax benefits."

Exacerbating his concerns are reports that the director of one the nation’s top-ranked 529 plans, the Utah Educational Savings Plan Trust, embezzled money from the plan’s administrative funds . The director, Dale Hatch, was fired last week after an internal audit within the Utah Higher Education Assistance Authority – an arm of the state Board of Regents that oversees the plan – uncovered "questionable transactions."

The audit was prompted after several employees raised concerns two weeks prior to his dismissal. Mark Spencer, the authority's acting executive director, has assumed responsibility for the plan in the interim.

In February, Donaldson established a special task force to address these concerns and formulated a series of guidelines for plan sponsors to adhere to following a hearing before the Capital Markets subcommittee. While Oxley applauded Donaldson’s efforts, he further urged the Commission staff to ensure that investors actually benefit from the improvements proposed by these guidelines.

He stressed the importance of revamping the fee structure to include a standardized methodology for calculating fees and performance along with a detailed description of fees and performance in both dollar amounts and percentages.

Oxley also called for the elimination of discrimination against investors who choose out-of-state plans by not providing tax exemptions for contributions and withdrawals. Another suggestion he offered was that each state provide at least one low-cost investment option, such as a broad-based index fund.

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