Md. keeps T.R. Price for college funds plan

Investment firm outbids four others, reduces fees to retain state contract

`529' plan allows investing in tax-deferred account

Board of Public Works expected to OK state committee's unanimous choice

September 17, 2005|By Eileen Ambrose | Eileen Ambrose,SUN STAFF

T. Rowe Price Associates will continue managing Maryland's college savings plan for at least another seven years after agreeing to cut some of the fees paid by participants, plan officials said yesterday.

The Baltimore-based investment company outbid four competitors for the contract to manage the Maryland College Investment Plan. The other bidders were TIAA-CREF and OppenheimerFunds, both based in New York; Union Bank & Trust Co. in Nebraska; and Massachusetts-based Upromise, which is affiliated with the Vanguard Group.

"The firms were very competitive. You have to look at what's best for plan participants," said John Lang, board member of the College Savings Plans of Maryland, who served on a committee to evaluate the bids. The committee, which unanimously recommended Price, considered fees, service, returns and investment style.

"We're thrilled to have been rehired," said Renee Boyd, a Price vice president.

Price has managed the state-sponsored plan since its launch four years ago. Back then, Price was the only company bidding on the contract, said State Treasurer Nancy Kopp, who chairs the College Savings Board.

Plan assets are nearly $823 million, invested on behalf of about 60,800 beneficiaries.

State-sponsored college savings plans, sometimes called 529 plans for the tax code creating them, allow individuals to invest for college in a tax-deferred account. The money can be withdrawn tax-free if it's used for college, although this tax break is to expire in 2011 unless Congress intervenes. Virtually every state has a college savings plan now.

Earlier this year, plan officials sought bids from investment firms to manage the plan. Price's first contract expires next year.

"Look at what has happened in the 529 industry since 2001," said Joan Marshall, executive director of the College Savings Plans of Maryland, which oversees the plans. "The industry has grown tremendously. ... A number of fees are going down and other states are reducing fees."

Fees also have attracted the interest of the Securities and Exchange Commission, which formed a task force last year to see if high fees wiped away the plans' tax benefits.

Board members unanimously approved retaining Price, and the contract is expected to be approved by the state Board of Public Works. The seven-year contract and the plan's new fee structure are expected to take effect July 11.

Under the agreement with Price, the $75 enrollment fee on new contracts will be eliminated.

An annual program fee charged on assets in the plan will be reduced from a maximum of 0.38 percent to 0.28 percent. Once assets reach $2 billion, the fee would drop to 0.25 percent.

The $30 annual account fee would be cut to $25. It already is waived for those making monthly automatic investments or when a beneficiary's account balance reaches $25,000.

Price also plans to introduce a low-cost equity index portfolio.

"All those fee reductions will make their program more attractive," said Joseph Hurley, founder of, which provides detailed information on state plans. "The enrollment fee was probably the highest such fee in the industry. It's going down to zero."

In a separate matter, the board got a financial update on the state's other college plan, the Maryland Prepaid College Trust, which essentially allows investors to pay for college in advance. At the end of June, the "actuarial deficit" - the future shortfall based on the projected value of assets and liabilities - has shrunk to about $26 million, down from $75 million the previous year. Milder tuition rate increases and healthier investment returns helped slash the deficit.

Open enrollment in the prepaid plan begins Nov. 14. Contract prices are expected to rise an average of 6 percent over last year.

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