Should States be Involved in the 529 Business?

Mercer Bullard, president and founder of Fund Democracy Inc., is urging states not to get into Section 529 education savings plans. In a recent paper in the University of Cincinnati Law Review, Bullard claims that having states participate in the 529 business gives them too much influence in an industry that should be controlled by the private sector, a monopoly, and shields them from regulations guiding the mutual fund industry.

"There should e a good reason for a government to enter into an area populated by private actors an even better reason to give them a monopoly," Bullard reasons.

But state treasurers see otherwise. "Higher education, and making higher education affordable and accessible, is a primary-policy issue," Indiana Treasurer Tim Berry told InvestmentNews.com. Executive Director of the Virginia College Savings Plan, Diana Cantor, also argues that state-sponsored college savings plans are not a monopoly. "One company could become a monopoly if the states weren't involved in this program," she said.

Cantor added that the state often joins with a private business to sell and distribute the plan. Also, she noted that many people cannot afford to make the minimum contributions required by many mutual funds, and so states actually allow individuals with lower incomes to be able to participate in these types of plans, while financial services companies often market to higher-income people.

 The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.