From the August 2010 issue of Investment Advisor • Subscribe!

August 1, 2010

Morningstar to Rate 529 Plans

Sidebar to the feature "Do Your Homework"

Morningstar, which has researched 529 plans for years, is now adding a qualitative rating system for the plans, and quantitative ratings on 529 options within the plans. Set to be available in the fall of 2010, Morningstar will offer published reports on the 50 largest 529 plans; the reports will include a Morningstar qualitative rating, analyst commentary, and data on some of the largest options within the plan.

The qualitative ratings will assess performance, portfolio, price, people, and parent--with ratings of Top, Above Average, Average, Below Average, and Bottom. Ratings and reports will be updated annually, with the issue of a white paper on industry-wide trends in 529 plans.

According to Morningstar, each plan investment option will be assigned to a new Morningstar 529 category; the category methodology is consistent with Morningstar's open-end mutual fund categories. The categories will take investment objective and asset allocation into account, and options with at least three years of operation will be assigned ratings of from one to five stars. The universe of 4,000 investment options will thus be classified into "meaningful, intuitive peer groups."

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