More Fee Disclosure Sought For College Savings Plans
Comparing Section 529 college savings plan program costs is next to impossible.
College savings plan experts from Morningstar Inc., Chicago, and other organizations made that complaint at a recent hearing of the U.S. House Financial Services Committee’s Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.
Committee Chairman Michael Oxley, R-Ohio, suggested that disclosure problems may be hurting the performance of the plans.
“Have the fees charged by these state-sponsored plans become so exorbitant that they actually outstrip the tax benefits that Congress has attempted to provide?” Oxley asked at the hearing. According to a written version of his remarks, “have the states established adequate procedures to monitor the performance and operation of the investment managers they hire to run their plans?”
Rep. Paul Kanjorski, D-Pa., the senior Democratic member of the subcommittee, talked about efforts by state regulators and agencies such as the National Association of Securities Dealers to respond to 529 plan program growing pains.
“It is very important to study these issues and for state and federal regulators to take coordinated action to protect the families who invest in 529 plans,” Kanjorski said. “Greater standardization in disclosing fees and expenses will facilitate direct comparisons in performance between the various 529 plans across state lines.”
Section 529 of the Internal Revenue Code gives each state the authority to set up its own 529 college savings plan programs. The law exempts taxpayers from paying federal income taxes on contributions and normal distributions. States can offer participants breaks on state income taxes.
Once a state sets up a 529 program, it can open the program to all U.S. taxpayers, but the breaks on state income taxes are usually available only to residents of the sponsoring state.