SEC Looks at 529 Fees

The latest SEC fee investigation was touched off by US House of Representative member Mike Oxley (R – Ohio), who sent a letter to the SEC pointing out that some states may have fees set so high on their 529 plans that the tax benefits these plans offer are being negated.   Already the SEC has conducted a limited review and found variations in fees for the same investments in plans offered by different states, according to a Reuters report.

For example, the SEC said it had found large differences even among the lowest-cost plans available, such as the Utah Educational Savings Plan Trust and the College Savings Plan of Nebraska.   According to the SEC’s assessment, a $10,000 initial investment in Utah’s fund matching the Standard & Poor’s 500 index of stocks, assuming an 8% annual return, would return 6% more to spend on a child’s education after 18 years than if the parent had invested directly in Nebraska’s plan.   The difference was attributed by the SEC to the lower fees of Utah’s plan.

However, a staff memorandum sent by the SEC to Oxley said different levels of disclosure among states made it difficult to compare 529 plans and federal securities laws applied in a limited manner to the state-sponsored funds.

Other than the fees charge by some of the plans, in the March 12 letter to Oxley – chairman of the House Financial Services Committee – SEC Chairman William Donaldson also raised issues about the plans themselves.   In this letter, Donaldson questioned whether or not the plans were too complicated for the average investor to understand.   To examine both the fees charged by these plans and the average investors comprehension of them, Donaldson informed Oxley he has established a “Chairman’s Task Force on College Savings Plans.”