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Wednesday, June 30, 2004

Illinois Looks for 529 Provider

News summary by MFWire's editors

Concern over out-of-state 529 plans is prompting the Illinois State Treasurer to take matters into her own hands. The Treasurer has begun the search for one or more providers for an advisor-sold college savings plan.

The concern stems from what Martin Noven, chief legal counsel at the Treasurer's office, estimates as hundreds of millions of in-state money going to out-of-state plans, some of which have high fees, are not "consumer friendly," and are not a good deal for out-of-state residents. The problem is compounded by the fact that broker-sold plans are able to attract a large amount of assets, said Noven.

"There are some real problems out there," said Noven.

Noven did not estimate how much the state hopes to attract through an intermediary-sold option, but the request for proposal states that the advisor-sold plan will not be a replacement for the direct option.

The state launched its direct-sold program, Bright Start, in April 2001. By June 14, the program had $1.02 billion in assets and more than 106,000 accounts. Illinois residents make up 71 percent of assets and 68 percent of total accounts.

Citigroup Global Markets, the lead vendor on the product, offers Citigroup, MFS and Aegon funds. Participants can choose from an age-based product, an all equity product, a bond product, and a principal protection product.

Although the Bright Start program is not designed to be sold through brokers, the state offers 50 basis points to advisors for sales of the product. Eighty brokers currently sell the product, and they're likely "not doing it for the compensation, [but] to help their clients," said Noven.

The request for proposal indicates that Citigroup will not be bidding for the plan: "[t]he current Vendor has elected to focus its efforts exclusively on the current Bright Start Program, so the Treasurer seeks an additional vendor/vendors to implement the Advisor-Sold Plan."

A "successful bidder will focus, in part, on providing reasonable fees to participants," and will also offer "best-in-class," multi-managed products. A plan not unlike a 401(k), said Noven.

Vendors must attend, via phone or in person, a conference at 1:00 pm CST on July 13, and must notify the treasurer's office by 12:00 p.m. on July 8 about the conference. Final proposals are due by August 10 at 3pm. More information is available on the Treasurer's website. 

Edited by: Theresa Sim

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