Is your 529 college plan one of the four with Morningstar gold?

Improvements to some plans include lower fees and an added layer of investment consultants

Oct 20, 2015 @ 3:39 pm

By Liz Skinner

Four college savings programs took home the gold from Morningstar Inc. in its latest review of 529 plans — the same four that ran away with the top rankings last year.

The top spots went to Alaska's T. Rowe Price College Savings Plan, managed by T. Rowe Price Associates; Maryland College Investment Plan, managed by T. Rowe Price Associates; Nevada's Vanguard 529 College Savings Plan, managed by Ascensus; and Utah Educational Savings Plan, managed by Utah Educational Savings Plan.

This year two plans scored negative ratings from Morningstar, which said it believes a flaw exists within those plans that is likely to hurt future returns, such as high expenses or turmoil with the program manager.

Those two plans include Arizona Ivy Funds' InvestEd 529 plan managed by Waddell and Reed and South Dakota's College Access 529 managed by Allianz Global Investors.


Five plans were upgraded this year. Three of those “meaningfully reduced fees,” said Leo Acheson, Morningstar's lead researcher for college savings plans. Some plans made other improvements over last year's rankings.

“Many states have partnered with asset managers that are strong stewards of capital and a number of states have hired an investment consultant to provide an additional layer of oversight,” he said.

(More: Fears about rising college costs present an opportunity for advisers)

In good news for the college savings plan American Century Investment Management manages in Kansas, called the Schwab 529 College Savings Plan, it moved up out of the negative rank to neutral this year.

Only one plan was downgraded his year, the USAA College Savings Plan in Nevada, which is managed by Ascensus. It moved from bronze to neutral, Morningstar said.

The five factors that Morningstar takes into consideration are the investment people involved with the plan, the investment strategies, the program manager, the plan's performance history and outlook, and the cost of the investment options.

(More: 529 plans adding more conservative investment options)

The ratings company analyzed 63 of the nation's largest college savings programs and said seven earned a silver rank, 18 a bronze rating and 32 a neutral ranking. All 29 ranked above neutral are predicted to outperform peers over at least five years.

Nationally, about $258 billion is invested in 529 plans, according to data from the College Savings Plans Network last month. The tax-advantaged education savings accounts gained their name through the Internal Revenue Service code that created them in 1996.


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