Morningstar’s best and worst 529 plans
As of August, 529 programs represented about $437 billion in assets, according to the investment research firm. The rankings include 62 total plans, accounting for about 97% of the industry by assets.
Three 529 plans were awarded Morningstar Inc.’s top rating, while seven received negative overall reviews, according to an annual college savings report published today.
Consistent with its ratings last year, the Illinois Bright Start Direct-Sold College Savings, Michigan Education Savings Program and Utah my529 plans got gold medals from Morningstar. All of the top-ranked plans are direct-sold, while five of the seven at the bottom of the list are adviser-sold.
The Utah plan is the only one that has maintained its top rating since Morningstar started its reviews of 529s in 2012.
“This year, the team collapsed its four age-based tracks into a single progressive glide path, one method of construction that we view as industry best practice,” the authors of the report wrote. “A progressive glide path makes frequent shifts between stocks and bonds relative to the stepped construction of age-based glide paths, which helps reduce the risk of selling stocks at the wrong time.”
The Illinois plan has two different age-based investment options — one is a mix of active and passive funds, and the other includes only index funds.
“Each series is divvied into three tracks that vary in stock exposure to accommodate different risk tolerances; all sport 10% steps between stocks and bonds,” the report noted. “The thoughtful design and mix of strong active managers alongside core index funds make the plan a superb offering for investors.”
As of August, 529 programs represented about $437 billion in assets, according to Morningstar. The firm reviewed 62 total plans, accounting for about 97% of the industry by assets, and 32 such plans got a rating of gold, silver or bronze, the report stated.
It’s a market that is increasingly being dominated by a few players. According to a report in June from AKF Consulting, 10 program managers oversaw 90% of the industry assets, compared with 80% in 2011.
UPGRADED, DOWNGRADED
Georgia’s Path2College 529 Plan was bumped up to Morningstar’s silver rating this year, following significant change the state made to it over the past year and a half. Previously, the plan was given a neutral rating.
Last year, the plan switched from age-based investment options to “a progressive, enrollment-based construction, driven by the research of program manager TIAA,” the report stated. And earlier this year the plan moved to a single glide path, rather than two.
“Georgia also drove cost reductions during contract negotiations, resulting in an average cost of roughly 0.09% for the enrollment portfolios, the lowest of any 529 plan under Morningstar analyst coverage,” the report read.
Conversely, Virginia’s Invest529, which in 2019 was rated as gold, went down a notch over the past year, from silver to bronze. That change was due in part to last month’s departure of investment director Michael Nguyen.
“However, seasoned individuals remain, and we still believe Virginia’s direct-sold plan stands as a compelling option for education savers relative to many alternatives,” the authors noted.
NEGATIVE RATINGS
The seven lowest-ranked plans in this year’s report are the Maine NextGen College Investing Plan Select, Nevada SSgA Upromise 529 Plan, Nevada USAA College Savings Plan, New Jersey Franklin Templeton 529 College Savings Plan, New Mexico Scholar’s Edge, South Dakota CollegeAccess 529 Plan and Wisconsin Tomorrow’s Scholar 529 Plan.
“Most negative-rated plans charge high fees that investors are better off avoiding,” the report noted. “Prices can depend somewhat on how a plan is distributed — plans that are sold exclusively through financial advisers often layer on commission fees to compensate advisers for financial advice.”
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