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Business First of Columbus - November 16, 2009/columbus/stories/2009/11/16/story2.html

Friday, November 13, 2009

Business First of Columbus - by Adrian Burns

The administrator for Ohio’s college savings plan has completed a multiyear effort to improve its investment

offerings and is studying a return of the popular prepaid tuition program.

The initiatives are aimed at developing a competitive college savings program by offering options ranging from

higher-risk investments to ones that all but ensure a pot of education money will await students when they reach

college age, said Michele Marra, interim executive director and CFO of the Ohio Tuition Trust Authority .

The Guaranteed Savings Fund, which allowed parents to buy tuition credits that would keep up with tuition

increases, was closed in 2003 after the authority’s investment performance fell behind the pace of colleges’

escalating tuition costs. That left savers with a small group of tax-exempt Ohio 529 College Savings Plan offerings that in some cases were

criticized for high fees and subpar returns.

“We wanted to make sure what we’re offering meets as many people’s needs as possible,” Marra said.

The five-year effort has borne fruit. The authority has added numerous investment options from several money managers, and its lineupin April was ranked among the five best in the nation by Morningstar Inc., which studies investment funds.

Prepaid revival

Options for Ohio’s college savers would become even more attractive with the relaunch of a prepaid tuition program offering a more

reliable alternative to the stock market, said Mark Coffey, a financial planner with John E. Sestina and Co., a financial planning firm in

Columbus.

“A lot of parents (would) get satisfaction in knowing that regardless of what happens in their 401(k) plan, at their job or in their business,

at least their kids have college education taken care of,” he said. “It’s more than a longing. I think it’s a strong demand.”

Ohio’s first prepaid tuition fund was launched in 1989 and allowed savers to essentially set aside college tuition years ahead of time with a

guarantee that the money would grow along with increases in tuition rates. But the fund was closed to new investments in 2003 after

projecting a deficit, as the outlook for payouts outpaced growth in its investment portfolio.

The state’s two-year budget passed this year included a provision that requires the authority to study relaunching the prepaid fund, Marra

said.

“The Board of Regents and Chancellor (Eric) Fingerhut’s higher education 10-year plan is all about making college affordable and

accessible to every student in Ohio,” she said. “One thing that would add to that affordability could be the addition of a prepaid plan.”

The authority expects to have the study completed this year. It would give it to the governor and leaders of the Ohio General

 Assembly , which must pass legislation if a new prepaid fund is to be created. Although details have yet to be worked out, it likely would

carry less of a guarantee than the previous version, with risks spread among savers, colleges and the state in case the fund failed to keep

up with tuition inflation, she said.

“It would be a totally different type of model,” Marra said.

Coffey said a new approach could work, but it might not be as much of a sure thing as the original program. For instance, savers might see

their investments discounted by some amount if the markets tank, he said. Still, a prepaid plan could prove more reliable than aninvestment tied to the stock market, he said. If a new plan is anything like the old one, it likely would be popular, Coffey said.

“I probably have a handful of clients who have accounts using the prepaid option, one of whom has children currently attending college

now,” he said. “It was a home run for them.”

Traditional investments

For now, savers’ options are limited to equities, bonds and certificates of deposit. Similar to a 401(k) plan, savers can choose from a

 variety of mutual funds or other investments that offer a mix of fees and philosophies. Earnings on 529 plan investments typically aren’t

taxed, and Ohio also offers a state income tax deduction for 529 plan contributions.

The 529 plan was started in 2000 and for its first years had few investment options – and they were unattractive because of high fees,

Coffey said. But the authority began to add options in 2004 and has assembled an attractive array of products, according to a report from

Morningstar.

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“The Ohio CollegeAdvantage Savings Plan continues to improve and has evolved into a top-notch program,” the report said.

Its lone adviser-sold plan, marketed by brokers who get commissions, continues to be one of the worst such offerings, Morningstar said.

“The broker-sold plan managed by Putnam Investments has made improvements, but investors should still steer clear of this

offering,” the company said, citing annual fees of 1.04 percent to 1.27 percent of assets under management, compared with plans offered

directly through the Tuition Trust Authority that had fees ranging from 0.23 percent to 0.46 percent.

The state is tied to the Putnam option through a contract until fall 2010, Marra said. When that contract is up, the authority will consider

 whether to continue doing business with the company, she said.

It seems clear the authority is working to skirt Putnam, said Greg Brown, a mutual fund analyst with Morningstar. In October, it selectedBlackRock Inc. to provide a second adviser-sold offering.

“BlackRock is a solid fund manager and given the circumstances, it’s probably a smart move,” he said. “If the Putnam plan continues as it

is, then it’ll probably end up on the worst list for the third year in a row.”

“I think we’re at the point now where we feel like we’ve got a pretty optimal lineup,” Marra said.

Ohio Tuition Trust Authority 

Business: Administers college savings programs that are exempt from state and federal income taxes.

Based: Columbus

Interim executive director: Michele Marra

Employees: 47

Operating budget, year ending June 30: $7 million

 Assets as of Sept. 30: $5.4 billion

 Web site: collegeadvantage.com

614-220-5450 | aburns@bizjournals.com

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ge savers get options, with prepaid under study - Business First of C... http://columbus.bizjournals.com/columbus/stories/2009/11/16/stor

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