DATE: September 7, 2004

CONTACT: Gus Wales

PHONE: (225) 922-2029

FAX: (225) 922-0790


While the fees charged by many state-sponsored 529 college savings plans have become targets of industry criticism and governmental review, Louisiana’s 529 plan, the START Saving Program, which charges no fees, is not among that group and has benefits few programs can match.

Because START’s benefits are only available to investors with residential ties to Louisiana, the START Saving Program is not given its due by national pundits, such as Morningstar and Fortune magazines. However, in a point-by-point comparison with a recent Morningstar report, START offers more benefits than most plans, with none of the fees.

Several state 529 plans have been accused of putting the interests of financial-service providers ahead of the consumers they were supposed to help and are currently the subject of two congressional hearings, a Securities and Exchange Commission (SEC) task force review and a securities industry regulatory investigation.

The main complaint against the plans relates to fees levied by plan managers against investor capital. The fees can range from 0.44 percent to 2.90 percent, with an additional brokers’ commission of up to 5.75 percent. In some cases, the total fee load can consume as much as one-third of an investor’s potential gains. When this occurs, it can offset the tax benefits granted to 529 plans by Congress in order to help families save for college. Another criticism of the plans focuses on their limited investment options for potential investors.

According to Ann Perry, senior writer at, “Many plans charge a slew of fees. The exact names may vary but they usually include a one-time enrollment fee, ongoing account-maintenance fees, administrative fees and management fees, and in many cases broker fees or commissions.”

“Not so with START,” said Jack Guinn, executive director of the state agency that administers START. “There are no enrollment fees, no account maintenance fees, no administrative fees, no broker commissions and only “no-load” funds in our six investment options.”

Every state, as well as the District of Columbia, offers a 529 plan. Although sponsored by individual states, the administration and money management functions are usually contracted out to well-known investment firms.

“If states really put consumers first when selecting 529 managers, then each would offer the low-cost Vanguard or TIAA–CREF family of mutual funds, which can be purchased without brokers and commissions,” Bob Veres, editor and publisher of Inside Information, a newsletter for financial advisers, said.

START’s investment options only include mutual funds managed by respected investment manager Vanguard, Inc. The highest investment management fee charged to START for a Vanguard fund is 0.28 percent, a figure that is significantly lower than Morningstar’s “best of the best.” (See chart at end of story.)

Congressional testimony also faulted many of the 529 plans for failing to provide a no-load fund for their account owners. All of the mutual funds in the investment options offered by Louisiana’s START Saving Program are no-load.

An additional feature that places START ahead of other plans is its Earnings Enhancements, which are contributions from the state that match a percentage of an investor’s deposits. As one of only three states to provide some form of state match (Louisiana, Michigan and Minnesota), Morningstar’s Web site praised START’s hefty state match in a special report by Shannon Zimmerman.

“Bayou Staters, however, have the biggest reason to cheer,” Zimmerman wrote. “Indeed, depending on how much money you make, the state will provide a match of up to 14
percent of your contributions. (The minimum is currently 2 percent, so even the state’s high-income earners can participate in at least a portion of the state’s match game.)”

Morningstar pointed out that residents who invest in out-of-state plans do not receive the same state-tax-advantaged status as those who invest in state-sponsored plans (such as START).

“The state does not tax the earnings from other 529 plans that are received by residents,” said Carol Fulco, director of the START Saving Program. “However, participants in the START program do receive state benefits that are not available to residents who elect to participate in the plans offered by other states.”

“With no administrative fees, every dollar deposited to START goes to work for the investor,” Guinn said. “Coupled with earnings enhancements, state tax advantages and no-load mutual fund investment options, for a Louisiana resident, START’s 529 college savings plan is clearly superior to those offered by other states.”

Named for a section of the Internal Revenue Service code, 529s are state-run programs that offer many federal tax breaks. The plans originated with a prepaid tuition contract created in the state of Michigan in 1986, leading to an amendment in the U.S. tax code in 1996, Section 529, allowing certain state tuition programs to defer federal taxes on participants’ income. An additional federal tax-law change in 1991 allows 529 earnings to be withdrawn federal tax-free, through at least 2010, if used for qualified education expenses, such as tuition, books and room and board.


Morningstar Rating Of 529 College Savings Plans As Provided To Congress By Senior Fund Analyst Don McNeela on June 2, 2004

Name of Plan
Primary Fund Provider
Fee Range
Student Tuition Assistance and Revenue Trust
0.00-0.28 percent

Top-Five State-Sponsored College Savings Plans:
Name of Plan
Primary Fund Provider
Fee Range
Educational Savings Plan Trust
0.00-0.44 percent
Vanguard 529 College Savings Plan
0.65-0.85 percent
0.67-1.47 percent
Education Savings Program
0.65-1.27 percent
T. Rowe Price College Savings Plan
T. Rowe Price
0.65-1.27 percent

Worst-Five State-Sponsored 529 College Savings Plans:
Name of Plan
Primary Fund Provider
Fee Range
EdVest College Savings Program
0.50-1.71 percent
Waddell & Reed InvestEd Plan
Waddell & Reed
2.21-2.64 percent
Family College Savings Program
0.73-2.10 percent
529 College Achievement Plan
Merrill Lynch/MFS
1.80-2.90 percent
Putnam CollegeAdvantage Savings
1.10-1.89 percent