SCOTTSDALE, Ariz. - Not only are the features in various state-sponsored 529 college savings plans widely different and difficult to compare, but politics can get in the way, too.
That was the warning sounded by Elizabeth L. Bordowitz, general counsel for the Finance Authority of Maine, at the Operations Conference of the Investment Company Institute here last month. Political decisions always surround decisions in 529 state plans, Bordowitz said. That is something that industry professionals should keep in mind when planning to grow or change their 529 business, she said.
It's not enough to offer and to spell out various incentives, such as those in Illinois, Colorado, New Mexico, West Virginia and South Caroline, which are among those with unlimited tax-deduction incentives, Bordowitz said. New York, Missouri, Arkansas and Tennessee, meanwhile, offer tax deductions to more limited extents, she said.
One of the major topics at the session, "Education Savings Options," was how well and how widely 529s will work as employee incentive tools, and what human resource and accounting professionals will look for in selecting one 529 over another. As well, panelists discussed various ways that fund companies and their government partners can deliver these savings tools.
Bordowitz fielded a question about the development of a college savings plan by employers and unions, not the state.
This would eliminate fees and be a cheaper option for investors, according to the individual posing the question. But how companies would be able to offer 529 plans without going through their states is questionable, Bordowitz said, since these plans are created through state interpretations of tax law.
"I don't know how they will do it because you need a state to establish and maintain a 529," she said. "You need to hook into a state."
Moderator Douglas L. Anderson, SVP at Delaware Investments of Philadelphia, said, "From an operational perspective, [establishing a 529 through an entity outside a state] can make your head spin.
"I don't see this happening anytime soon," Anderson added.
Bordowitz then discussed the NextGen Investing Plan, were earnings grow income-tax free if the funds are used for qualified higher-education expenses. Bordowitz' home state of Maine offers this plan through the Office of the State Treasurer and the Finance Authority of Maine.
Maine permits assets to be used for tuition, room, board and books, and used at most accredited schools in the United States, as well as a few universities abroad. Like many other states, Maine allows anyone in the United States to participate in its plan, regardless of where they reside.
Picking up the mantle for the second half of the session was Jim Fadule, president of Upromise Investments, a registered broker/dealer and a subsidiary of Upromise of Needham, Mass., a company that has proclaimed to have brought together America's leading companies, investment firms and tax advantages to help families save more for college.
"College and tuition [are] still on the forefront of everyone's mind," Fadule said, adding that Upromise, which launched nearly two years ago, has attracted 2.6 million members. In addition, the company has recruited more than 14,000 grocery and drug stores to join its network, as well as 2,000 product brand names,including Kellogg's, Keebler, Huggies and Tylenol. he said. As a result, Upromise is making a net profit of six figures every month, Fadule said, declining to be more specific.
As for Upromise's business model, Fadule did offer that his company collects a "modest bounty" from partners when it signs up new members. As well, most of its co-op partners carry the lion's share of the marketing costs, Fadule noted.
Retail and manufacturing firms that have also joined the Upromise network include: AT&T, Citibank, ExxonMobil, General Motors, American Airlines, Toys R Us, Coca-Cola, AOL, Century 21, CVS, McDonald's and Staples. By shopping with these companies, Upromise rewards consumers with rebates that they can use toward college savings plans.
On the investment side, Upromise partners include Fidelity, Salomon Smith Barney, Strong Capital Management and Vanguard.
On the horizon, Fadule said Upromise is planning to offer a family gift certificate feature sometime in 2003, whereby family and friends can contribute to a child's college fund in lieu of a birthday, graduation or holiday present. This new service will resemble a similar feature that another company came out with as a type of investment bridal registry service.