Skip to Content

6 Upgrades, 3 Downgrades in Our New 529 Plan Ratings

6 Upgrades, 3 Downgrades in Our New 529 Plan Ratings

Leo Acheson: We continue to see meaningful improvements in the 529 industry. Fees are lower than they've ever been, underlying fund lineups are stronger, asset-allocation approaches have improved, and oversight from the state and investment manager is better. Not surprisingly, this year's 529 plan ratings release saw more upgrades than downgrades. We upgraded six plans and downgraded three.

Two direct-sold plans run by program manager Union Bank & Trust were upgraded. Illinois' Bright Start College Savings plan was completely overhauled in 2017 after the state replaced program manager Oppenheimer with Union Bank & Trust. The plan's investment lineup has improved meaningfully, and fees are very low, which led us to upgrade the plan to Gold from Bronze. The plan offers passively managed age-based portfolios at a cost that's among the lowest in the industry at 12 to 15 basis points, and investors can also select age-based options that blend compelling active funds with passively managed strategies. Meanwhile, we have similar confidence in the oversight at Alabama's CollegeCounts 529 plan, which we upgraded to Silver. Fees aren't as compelling as Illinois' plan, which is why it's not rated as highly.

We also upgraded to plans that were previously rated Negative to Neutral, and the reasoning for the upgrade was the same for both plans. West Virginia's Hartford Smart529 and South Dakota's CollegeAccess both had high fees and large steps in their age-based portfolios, which can court market-timing risk. Previously, the age-based tracks at both plans derisked by cutting equity exposure in large increments as high as 25 to 30 percentage points on individual days. But both plans reduced the sizes to about 10 percentage points. Meanwhile, they each previously had hefty price tags, but they cut expenses during the last year.

As far as downgrades go, most were a result of plans not keeping pace with industry improvements. It's true that if you are standing still, you end up falling behind. A good example of that is New Jersey's advisor-sold Franklin Templeton 529 College Savings Plan, which we downgraded to Negative from Neutral. As many peers have smoothed the transition from stocks to bonds in the age-based portfolios, investors here experience rather dramatic 25 percentage-point declines as they approach college. Franklin Templeton hasn't made changes citing a lack of investor demand for improvements. The plan also hasn't kept pace with the industry as far as fees are concerned, and it's expensive versus advisor-sold competitors.

Overall, we are happy to see that the industry continues to build upon improvements year after year.

More in Personal Finance

About the Author

Leo Acheson

More from Author

Leo Acheson, CFA, is director, multi-asset ratings, global manager research for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc.

He oversees Morningstar’s multi-asset ratings as well as the firm’s multi-asset and alternatives manager research team. The group covers a range of investment vehicles, including allocation strategies, alternatives, target-date funds, 529 plans, HSAs, model portfolios, and Mexican pension funds.

Before joining Morningstar in 2013, Acheson spent four years working for a Chicago-based investment consultant, conducting mutual fund and asset-class research to help corporations manage their investment programs.

Acheson holds a bachelor’s degree in finance and accounting from Indiana University’s Kelley School of Business. He also holds the Chartered Financial Analyst® designation.

Sponsor Center