A new way to benchmark Section 529 plans

NOV 06, 2013
Financial advisers soon will have a new way of evaluating the performance of college savings plans by comparing them with indexes that Morningstar Inc. plans to introduce in late December. The 21 indexes will track conservative, moderate and aggressive investment paths for seven different age-based portfolios, the investment research company said. The indexes do not mimic specific Section 529 college savings plans, nor are they a composite of portfolios within plans. But the underlying securities and glide path of each Morningstar 529 Index represent those that would be included in a 529 plan portfolio aimed at benefiting someone of a certain age and risk tolerance, said Sanjay Arya, head of Morningstar Indexes. YARDSTICK “It will help create some kind of yardstick for people who are looking to compare 529s with an independent benchmark,” Mr. Arya said. Comparing the results of a particular 529 portfolio to the appropriate index would give investors or advisers more information “about the acumen or ability of the manager to add value above and beyond the benchmark,” he said. Mr. Arya compares the product to the Morningstar Multi-Asset Index family, which covers target date funds and certain other asset allocation strategies. The 529 indexes, which will be reported daily on the Morningstar website, don't account for plan fees. Section 529 plans are set up by states and offer tax-free gains on earnings if used to pay for eligible college expenses. Many offer residents state tax deductions on a certain amount of annual contributions.

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