TIAA-CREF to manage California’s 529 college plan
California has chosen TIAA-CREF to manage its college savings plan that contains about $4 billion in assets. The ScholarShare Investment Board that oversees the state’s 529 program voted this past Monday to award the investment management firm a five-year contract. TIAA-CREF will replace current manager Fidelity Investments, whose contract expires in November.
Fees on average will be lower than the current fees charged under Fidelity, said Joe DeAnda, a spokesman for California Treasurer Bill Lockyer. TIAA-CREF will have eight people in California promoting the accounts, including two bilingual speakers, and will spend $10 million per year toward marketing, doubling Fidelity’s marketing dollars for the program, according to DeAnda.
“We think with TIAA-CREF, and the marketing plan they presented and they’ll provide, that we’re going to be able to make more headway in extending this product to working folks in the middle class,” said Tom Dresslar, a spokesman for the Treasurer’s office.
California’s program has about 280,000 accounts totaling $4.2 billion in assets, according to Fidelity spokeswoman Teri Ginsburg. Fidelity chose not to compete for the new contract.
California has two 529 programs: one sold directly to investors and one sold through financial advisors. The state did not receive any bids for its advisor-sold product and is still weighing options for management of that program.
“Fidelity made a strategic business decision not to bid for the ScholarShare and ScholarShare Advisor College Savings Plans and we will focus efforts in California on our growing IRA, brokerage, retirement, workplace, financial advisor and institutional business,” said Fidelity spokesman Vincent Loporchio.
Nationwide, 529 assets totaled $149 billion as of April, according to Chicago-based research firm Morningstar, Inc.
TIAA-CREF is the largest U.S. manager of retirement plans for teachers and academic researchers, and currently administers college savings plans in eight states, said company spokesman Chad Peterson. These plans contain $7.8 billion in assets, according to FRC data.
California received only one other bid, from Union Bank & Trust Co., for its direct-sold plan. A general decline in management fees may account for why the state received only two bids, according to Dresslar.
According to the ScholarShare board, TIAA-CREF management fees for the direct-sold plan will average 0.23% for index age-based portfolios and 0.58% for actively managed accounts.
529 program investment earnings are often free of state and federal taxes when used to pay for eligible education expenses. While about three-quarters of states offer a tax deduction or credit for a portion of investor contributions to 529 plans, California does not. This may be another reason the California plan did not receive many bids, according to Dresslar.
“Given our fiscal difficulties here that is not going to happen any time soon,” Dresslar said of potential tax breaks in the future. “Its just not in the cards now until the budget gets straightened out.”
Sources:
TIAA-CREF replaces Fidelity for California’s $4B 529 college plans (http://www.investmentnews.com/article/20110613/FREE/110619984). Investment News, June 13, 2011
California 529 program taps TIAA-CREF (http://www.pionline.com/article/20110614/DAILY/110619960/1062). Pensions and Investments, June 14, 2011