SEC Establishing Task Force on Tuition Savings Plans

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March 23, 2004

Citing a lack of available information for participants, Securities and Exchange Commission (SEC) Chair William Donaldson is establishing a task force to review cost and management concerns related to state-sponsored tuition savings programs, also known as 529 plans. Creation of the task force is one of several actions Donaldson mentioned in a letter responding to inquiries from Rep. Michael Oxley (R-Ohio), chair of the House Financial Services Committee.

Oxley questioned issues such as transparency of financial and investment information, disclosure of information to investors, and accountability for fund management. Oxley’s inquiry stems from recent press reports of isolated 529 plan mismanagement and high fees charged to participants.

Donaldson noted that the SEC does not directly regulate most elements of 529 plans since the plans are managed by state government entities. Plan participants “hold interests in a municipal issuer – the state trust fund – that is exempt from the bulk of the federal securities laws.” The state then contracts with fund managers who invest funds on behalf of the state trust and ultimately the plan participant.

While many 529 plans invest in mutual funds, the SEC found that most 529 plan investors receive less information regarding their investments than if they had directly purchased shares of a mutual fund themselves.

More information can be found on the House Financial Services Committee’s Web site.