The state of New York is late in putting out its request for proposal for its direct-sold Section 529 college savings plan, and in-state investors are paying higher fees as a result of the state's tardiness, experts said.
New York's contract with its 529 program manager, uPromise Inc., which offers a number of
The Vanguard Group Inc.'s funds to investors, is set to expire Sept. 1. But the state has yet to put out a request for proposal for a new contract, officials said.
“The New York program is currently preparing an RFP, which will be released shortly,” Vanessa Lockel, a spokeswoman for the program, wrote in an e-mail, adding that “uPromise will manage the plan until a new long-term contract is awarded as a result of the RFP.”
She declined to comment about why the state was late with the RFP or exactly when it would go out.
In the meantime, investors in the $8 billion 529 program — the largest direct-sold plan in the country — are paying 0.49% in fees.
Other direct-sold plans such as Utah's, offer Vanguard's funds at costs as low as 0.20%, said Andrea Feirstein, managing member of AKF Consulting Group, a 529 consultant.
“People expect that once the bidding starts with the New York plan, the expenses will go rock bottom,” said Joseph Hurley, president of Savingforcollege.com.
“Advisers have to be looking at the New York plan and seeing that it is egregiously overpriced given its size,” Ms. Feirstein said. “Even with the tax break for in-state investors, it may make sense to look at out-of-state plans given the fees of this plan.”
Investors could certainly find cheaper options using index funds with other state plans, Mr. Hurley said.
However, New York won't have another plan in place for three or four months, experts said.
It can take from four to six months from when the RFP goes out for the state to have a new manager in place, Ms. Feirstein said. “And given that it's an election year, it could take longer.”
