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June 17, 2004 at 08:00 PM
As if putting a kid through college was not difficult enough, now there are intimations that state-sponsored college savings plans are sticking it to the families who sign up by charging exorbitant fees.
Lest you think that the use of the word “exorbitant” is yet another liberal plot, I have to say here and now that it was uttered by no less than Rep. Michael Oxley, R-Ohio, the powerful chairman of the House Financial Services Committee.
At a recent hearing of the committee’s Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, Oxley asked, “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?”
You should know that in the time-honored tradition of Congress, this was not really a question. It was the congressman’s way of making a point while seeming to keep an open mind on the issue.
In any case, there were plenty of other parties on hand to testify that “something is rotten in the state of _______.” (Take your choice.)
Morningstar Inc. and other parties said that comparing Section 529 plan costs was all but impossible. This lack of transparency is pretty much built into the system.
The states can set up their own 529 plans, which are not subject to federal securities fee disclosure requirements. Combine this with a myriad of tax breaks that individual states choose to give those who participate in their plan (mostly to residents of that state) and you have the elements of an equation that stumps a lot of people.
To see how difficult it might be for Joe or Sally Public to figure out how much they are paying for the privilege of parking money for little Jimmy’s future education, listen to what Dan McNeela, a senior analyst with Morningstar, had to say.
“Calculating the specific fees associated with a specific investment can be a major undertaking,” said McNeela, explaining that each state uses its own fee structure and discloses those fees at the end of long and complicated disclosure documents (a place most of the public doesn’t get to, presumably).
