Two of the Section 529 college savings plan industry's most sought-after contracts up for renewal this year have been taken off the table, leaving Michigan as the biggest prize for ambitious program managers in 2008.
Nonetheless, last week's announcements that New Jersey and Iowa had extended contracts with
Franklin Templeton Investments of San Mateo, Calif., and Upromise Investments Inc. of Newton, Mass., respectively, came as a blow to companies that had hoped to expand their market share in the $100 billion-plus 529 market.
Upromise, on the other hand, was buoyed by the news that the Iowa state treasurer's office renewed its contract with Upromise and
The Vanguard Group Inc. of Malvern, Pa., to manage through 2017 its $2 billion College Savings Iowa plan, which is based in Des Moines.
In New Jersey, the Trenton-based Higher Education Student Assistance Authority decided to exercise an option to extend its contract with
Franklin Templeton through March 2011 for two programs: the
Franklin Templeton 529 College Savings Plan and The New Jersey Better Educational Savings Trust, which, combined, have more than $2 billion in assets.
Similar to Los Angeles-based
American Funds Investment Co., which manages more than $25 billion for Virginia's CollegeAmerica program in Norfolk,
Franklin Templeton is known in the 529 industry for having a strong following among financial planners and advisers around the country despite costs that can range up to 1.46% of assets annually for age-based plans.
Meanwhile, it was no secret that the New Jersey contract was highly valued in the industry. "Everybody is very interested in New Jersey," James Canup, an attorney for Richmond, Va.-based Troutman Sanders LLP, said before the contract extension was announced.
Indeed, Raquel "Rocky" Granahan, vice president and director of 529 college savings plans for New York-based Oppenheimer Funds, Inc., put New Jersey at the "top of the list" of states her company was looking at, while Bill Raynor, Oppenheimer's vice president of college savings plans, called the New Jersey plans a "phenomenal" opportunity.
Program managers are casting covetous glances at Michigan, where in December, the state Legislature passed a law authorizing an adviser-sold 529 savings plan to complement its $2 billion, direct-sold Michigan Education Savings Program, which is based in Lansing. The plan is managed by New York-based TIAA-CREF.
As a result, Michigan plans to issue a request for proposals sometime this year, said Robin Lott, the executive director of the Lansing-based Michigan Education Trust.
In Arizona, the Fidelity Arizona College Savings Plan's contract with Boston-based
Fidelity Investments is up for renewal in July. The three-year-old, $40 million plan is based in Phoenix.
Arizona has been very happy with the plan's growth, reduced fees and introduction of index funds, said April Osborn, executive director of the Phoenix-based Arizona Committee for Postsecondary Education.
A four-month review of the program by an oversight committee will begin next month to determine whether to renew the contract with Fidelity, Ms. Osborn said.
Contracts that do go out for bidding should be extremely competitive, industry sources said, adding that they expected Oppenheimer and Upromise to be among the most active program managers.
"We're seeing bids at every level, and every deal is competitive," said Andrea Feirstein, managing member of New York-based AKF Consulting LLC.
To snag new contracts, program managers will need to offer low fees, a brand name or other benefits such as rewards programs or scholarships, said Joe Hurley, president and chief executive of Pittsford, N.Y.-based Savingforcollege.com LLC, which was acquired last month by North Palm Beach, Fla.-based Bankrate Inc.
Oppenheimer has been particularly successful at undercutting its competitors' fees, while Upromise has been adept at leveraging its brand awareness with state programs, said Brian Boswell, research analyst for Financial Research Corp. of Boston.
Oppenheimer, which is now a program manager in four states, added Illinois' $1.4 billion Bright Start College Savings Program in Chicago last year after a bare-knuckled competition with TIAA-CREF and also took over Texas' $220 million, College Savings Plan in Austin.
In addition to its low fees, Oppenheimer attracted attention by contributing $3.5 million over seven years to a BrightStart scholarship fund.
"It was received very favorably," said Troutman Sanders' Mr. Canup. "A lot of states are now looking at scholarships."
Upromise, often teaming with The Vanguard Group Inc., a Malvern, Pa.-based investment manager, expects to expand be-yond its already powerful position as the industry's second-largest program manager, with 529 plans in nine states and more than $17 billion in assets.
The company, which specializes in rewards programs, is focusing increasingly on building awareness and making Upromise offers accessible to consumers, said marketing vice president Liz Robinson. "States are still trying to reach as many people as they can, and we're trying to help them do that."
Lincoln, Neb.-based Union Bank and Trust Co., which keeps a low public profile and declined to answer questions for this article, is often mentioned as a program manager to watch when state 529 plan contracts come up for bidding.
Union manages Nebraska's Lincoln-based AIM College Savings Plan and TD Ameritrade College Savings Plan, which have nearly $800 million in combined assets, as well as Illinois' $300 million Springfield- and Chicago-based Bright Directions College Savings Program.
Charles Paikert can be reached at [email protected].
