California goes to school on 529 plans

Aiming to take advantage of lower fees and other investor-friendly trends in the college savings plan market, the Golden State puts its plans out for bid.

Mar 24, 2011 @ 3:49 pm

By Liz Skinner

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The state of California is hoping to take advantage of lower fees and other investor-friendly trends in the college savings plan market by asking companies to submit new proposals to run its two Section 529 plans.

In a 35-page request for proposals, California is asking firms interested in managing one or both of its 529 plans to discuss fees, investment choices, customer service, marketing and other factors. It also suggests it would like the company to offer non-proprietary investment options.

California's two plans, one sold directly to individuals and the other an adviser-sold plan, are managed by Fidelity Investments and offer Fidelity investment choices. The firm has run the plans since November 2006, and its contracts run out in November. Proposals are due May 2.

“The primary goal in doing this RFP now is to test the market, as it has changed a great deal since Fidelity came on,” said Joe DeAnda, a spokesman for California Treasurer Bill Lockyer. The RFP “is not a reflection upon Fidelity as manager,” he said.

Many 529 savings plans have cut fees in the past year, including those in Connecticut, Alaska, Iowa, Maryland, Michigan, Nevada, Pennsylvania and Virginia. In fact, Fidelity Investments lowered 529 plan fees in California's plans in December 2009.

But increasingly, college savings plans are moving to an open architecture in which plans offer investment products from multiple companies, said Joseph Hurley, founder and chief executive of

“With an open architecture, there's less risk that the program will falter because one particular fund family falters,” he said.

A Fidelity spokeswoman said the company will review California's RFP. Fidelity manages four other direct-sold 529s in New Hampshire, Massachusetts, Delaware and Arizona. It also manages an adviser-sold plan in New Hampshire.

“We have had four good years with a strong and successful relationship with the [California] ScholarShare program,” said Teri Ginsburg, a spokeswoman for Fidelity Investments.


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