The College 529 Plan Landscape

Transcription

1 Manning & Napier Advisors, LLC The College 529 Plan Landscape November 2010 Approved CAG-CM PUB021-R (10/11)

2 Introduction Given the ever growing costs associated with funding a college education, saving to meet those costs has become an increasingly daunting goal. For example, while inflation has historically pushed up the cost of goods and services at a rate of 3% per year historically, the price tag of a four-year private college education has increased at an annual rate of 7.0% over the last 30 years. Likewise, the price tag of a four-year public college education has increased at an annual rate of 7.8% over the same time period. As such, the importance of establishing a disciplined savings plan to fund college expenses has become more important now than ever. Since 2001, 529 plans have grown to be one of the most popular, if not the most popular, college savings vehicles (as a product of the Economic Growth and Tax Relief Act of 2001). A 529 plan is a tax-advantaged savings plan offered on a state-by-state basis designed to encourage saving for future college costs. In these plans, contributions grow on a tax-free basis and withdrawals are also tax-free if used for qualified education expenses. Furthermore, contributions to a 529 plan may be deductible on your state income tax. A total of 35 states offer a full or partial income tax deduction for contributions to the state's plan. Also, it is important to note that there are five states (i.e., Arizona, Pennsylvania, Kansas, Missouri, and Maine) which allow residents to invest in any states 529 plan and still qualify for a state income-tax deduction. Given the potential tax benefit associated with choosing an in-state plan, it is generally best for an investor to first consider their home state s plan when choosing a 529 plan. In cases where a resident s home state plan fails to adequately meet their goals, has no state income tax advantages/deductions, or allows residents to qualify for tax benefits with any state plan, navigating the myriad of plans becomes a necessity. This analysis identifies the plan characteristics Manning & Napier believes are most important and evaluates the universe of plans based on the outline below. This information is intended for general education purposes and is not intended to serve as a recommendation for any particular plan and/or investor s situation. Types of 529 Plans There are two types of 529 plans: pre-paid tuition plans and college savings plans. Pre-paid tuition plans (representing 20 out of the 118 total 529 plans) require pre-payment of college expenses and then are guaranteed to increase in value at the same rate as college tuition. The drawback of pre-paid plans is that they require upfront payment of future tuition costs and typically require that either the account owner or the beneficiary be a state resident when the account is opened. As a result, pre-paid tuition plans have not been considered in this analysis. Instead, we will focus on college savings plans (98 out of the 118 total 529 plans). Unlike pre-paid plans, college savings plans permit a college saver to establish an investment account, tied to the performance of underlying investment options, for the purpose of paying the beneficiary s future college expenses. Similar to the design of a typical 401(k) menu, college savings plans typically offer several investment options, including both asset class based options (i.e., stock funds, bond funds, money market funds) and multiple asset class options (i.e., balanced funds, risk based funds, and target-date funds). 1

3 Direct Sold vs. Advisor Sold Plans Clearly, with 98 state offered 529 college savings plans, each state on average offers approximately two plans. One reason for this is that several states offer both direct plans (available directly from the provider) and advisor plans (offered through a financial services professional). The potential benefit of advisor sold 529s is thatt they come with the asset allocation/security selection assistance and expertise of an investment professional. Since the asset allocation decision is a key determinant in future portfolio performance, advisor sold plans may be attractive to some individuals. However, investors that enroll in a college savings plan through an advisor sold plan are typically subject to additional fees/expensess to compensate for the professional advice. Direct Plan You College Savings Plan You Financial Advisor College Savings Plan Advantage: Fees are typically much lower than advisor plans, offer investors professional asset allocation expertise through the use of risk-based and age- advice from a financial advisor. based life cycle funds. Disadvantage: Does not provide personalized, individual asset allocaton Advisor Plan Advantage: Personalized, individual asset allocation advice from a financial advisor ( with input from participant). Disadvantage: Advisor plans generally charge higher fees than their direct sold counterparts. While some advisor plans may charge reasonable fees, many do not. For example, the expense ratio for New York s advisor 529 plan is 0.80% % for Class A shares, 1.55% % for Class B shares, and 1.55% % for Class C shares, including program management fees of 0.30% and distribution/marketing fees of 0.25% % %. Furthermore, the underlying investment options of the New York advisor 529 plan charge frontend load charges as high as 5.75% for Class A shares, back-end load charges as high as 5.00% for Class B shares, and back-end load charges as high as 1.00% for Class C shares. In addition, account balances below $25,,000 are subject to annual account maintenance fees of $25. For comparison purposes, the fee for New York s direct 529 plan is 0.25% (inclusive of all underlying manager fees). Due to the generally higher fees and expenses of many advisor sold plans, the 37 advisor sold plans were not considered in this analysis (leaving 61 direct sold plans). 2

4 Residency Requirements As mentioned previously, some state plans require the account holder (or student) to be a resident in order to enroll in their states 529 plan. Therefore, given that our focus is to identify attractive plans to individuals who want alternatives to their home state s plan, nine 529 plans should be taken out of consideration given these state residency requirements (i.e., Alabama s College Counts plan, District of Columbia s College Savings plan, Louisiana s Start Program, Montana s Pacific Life Funds plan, New Jersey s Best Program, Rhode Island s CollegeBound Fund, South Carolina s Future College plan, South Dakota s College Access plan, and West Virginia s Smart Plan). Limited Investment Menus There is much debate regarding how much risk (equity) exposure college savers should have at various points of saving and ultimately funding college expenses. However, most professionals would agree that some equity exposure is likely appropriate, especially in the early stages of college saving (i.e., when the potential student is young). Despite this general agreement, there are 6 plans whose sole offerings are CDs or short-term investments (i.e., Arizona CollegeSure Family College Savings Program, Montana CollegeSure Family College Savings Program, Colorado Stable Value Plus College Savings Program, Colorado SmartChoice College Savings Program, Wyoming Stable Value Plus College Savings Program, and Virginia CollegeWealth). NAVIGATING THE REMAINING 529 COLLEGE SAVINGS PLANS After eliminating a total of 72 plans (due to characteristics such as pre-paid, advisor sold, state residency requirements, and limited investment menus), 46 plans remain, each with varying tax benefits/implications, investment options, fees, etc., Choosing a plan among this group can be very difficult, however, there are certain factors an investor can consider to help find the plan which best meets their goals. Deciding Between Actively & Passively Managed Plans Proponents of passive management generally believe the equity markets are efficient and that all available information is already reflected in current security prices. As such, in depth analysis would be of limited use and the average, or even professional, investor would be unlikely to consistently outperform the market. Given these beliefs, advocates of passive management advise investors to simply buy a broad market index (e.g., the S&P 500 Index) as a means of gaining market exposure. Vanguard is an example of an investment manager who is a proponent of passive management and is prominently featured on several college 529 savings plans (e.g., Nevada s Vanguard 529 College Savings Plan). In contrast, proponents of active management believe that the markets are, in fact, inefficient and that new information is not immediately and properly reflected in equity prices. Thus, through in-depth analysis investors can uncover information not currently reflected in a stock s price and identify attractive investment opportunities in comparison to the market as a whole. For example, several of the underlying managers of the Virginia Education Savings Trust (VEST) pursue an active management approach (e.g., Templeton, Capital Research & Management/American Funds, Western Capital Management). 3

5 Age-Based Options: Age-Fixed & Age-Progressive In addition, since the asset allocation decision is the most important determinant in future performance, it is important to consider the age-based options within each 529 plan. Specifically, age-based options are designed to transition from mostly equities when a child is young, to more conservative investments (i.e., bonds and cash) as the beneficiary approaches college. As previously discussed, the one drawback of direct plans (as compared to advisor-sold plans) is that asset allocation decisions are the responsibility of the account holder. However, utilizing age-based options in direct-sold plans is an effective way to assign responsibility for ongoing asset allocation decisions to a professional manager with asset allocation expertise, without paying the additional fees associated with advisor-sold plans. Glide Path Considerations of Age-Based Options As previously discussed, age-based options are designed to transition from mostly equities when a child is young, to more conservative investments (i.e., bonds and cash) as the beneficiary approaches college. This transition is oftentimes referred to as a fund s glide path. In the wake of the broad market declines in 2007 and 2008, agebased funds were widely criticized for exposing investors to too much risk (equity exposure), too near to the target date (e.g., retirement or college enrollment). As a result, many funds made changes to the timing and magnitude of asset allocation adjustments in their glide path and/or began to offer multiple glide path choices depending on an individuals risk tolerance (e.g., a conservative glide path, moderate glide path, and aggressive glide path for investors with the same time horizon). It is important to consider the glide path of age-based funds when evaluating potential 529 plans to ensure that there is an option available that generally falls within your risk tolerance both today and in the future. Limited exposure to stocks early on could result in opportunity cost. In contrast, emphasis on equities as college begins could result in much greater than expected exposure to Capital Risk (i.e., the possibility of losing principal over the investment time frame). For example, while we generally liked several characteristics of 529 plans offered by T. Rowe Price, the age-based options in T. Rowe Price s 529 plans maintain equity exposures of nearly 40%-50% as college approaches, which may be too aggressive for an investor taking significant near-term withdrawals (i.e., expected withdrawals of 25% at age 18, 33% at age 19, 50% at age 20, and the remainder at age 21). Fees and Expenses After eliminating advisor-sold 529 plans from our analysis, the plans that remain generally have a much lower cost structure than the plan population as a whole. Furthermore, broad criticism of the fees and expenses charged by 529 plans in recent years teamed with increased assets in 529 plans (which increases economies of scale and naturally drives down costs) has helped to make 529 plans and their underlying investment options more cost effective. However, when comparing 529 plans against each other, total fees and expenses of 529 plans is still an important factor to consider. Meaningful fees, especially in a low-to-moderate return environment, may have a significant impact on the overall performance of a plan over long-term time periods (e.g., in this case, periods as long as 20+ years). In general, passively managed plans such as the Utah Education Savings Plan and Nevada s Vanguard 529 Plan, have investment options with lower fees and expenses relative to plans with actively managed underlying funds. However, fees charge by investment managers should be taken in context with the investment management services provided. While individuals generally should not consider paying more for one index fund than another (since one should not be expected to outperform another over the long-term, all other things equal), actively managed investment options should not be evaluated solely on the fees/expenses. The fees/expenses charged by actively managed investment options should be taken in context with their ability to provide value-added performance over a market cycle. 4

6 Choosing Among Similar Plans Currently the 529 plan marketplace is consolidated. A small number of investment managers (namely Vanguard and TIAA-CREF) manage a large percentage of state plans. For example, TIAA-CREF manages a total of 12 similar state plans. While each of the 12 share similar characteristics, after a closer look, there are oftentimes features that distinguish the plans from each other. When comparing all 12 TIAA-CREF managed plans, Michigan s Education Savings 529 plan stands out as a 529 with a blend of versatility within the plan and reasonable fees. Specifically, whereas Michigan s plan is flexible and offers three different risk levels in their age-based options (Aggressive, Moderate, and Conservative) and charges a fee of 0.45%, Kentucky s TIAA-CREF managed Education Savings plan offers only one age-based option with a fee of 0.65%. Likewise, with so many 529 plans having underlying investments mainly comprised of passively managed index funds, it may become difficult in deciding which passively managed state plan to choose. The key characteristics which should be considered strongly are the plan s flexibility, the amount of diversification, and the total fees and expenses. For example, despite New York s College Savings program having a very low fee of 0.25%, the agebased options of the plan appear to fail to provide exposure to international stocks. In contrast, Utah s Educational Savings Plan is composed of underlying Vanguard index funds that provide reasonable amounts of diversification, including exposure to internationals stocks. The plan has several age-based options to choose from and although Utah s fees may not be as low as New York s, the plan still charges a generally low fee of 0.18%-0.35%. What 529 Plans Should You Consider? The criteria and plan attributes listed above can be helpful in separating potential attractive 529 plans from less desirable plans and segmenting the plans based on personal preferences (e.g., active security selection vs. indexing). However, further refining the list of potential 529 plans to a group of finalists is difficult and subject to opinion. Furthermore, the 529 Plan universe is constantly evolving and changing, with plans competing to offer lower fees, improved investment menus, and refined life cycle options. However, based on the criteria discussed above, the following pages provide information on 5 state 529 college savings plans that we think investors should consider if they would not benefit from using their in-state plan. 5

7 OHIO COLLEGE ADVANTAGE 529 SAVINGS PLAN The Investment Options: The Ohio College Advantage 529 Savings Plan offers three Vanguard managed age-based options for investors with various risk tolerances that get more conservative as the target date approaches. A fourth age based option, the Advantage Age-Based option, is a multi-manager approach that provides exposure to both passive and active fund management from various fund managers (i.e., Vanguard, PIMCO, Oppenheimer, and GE Asset Management). The plan also offers four Vanguard managed risk-based options that provide generally fixed risk (equity) exposure over time. As an alternative, for individuals who would like to maintain control of their on-going asset allocation decisions, the Ohio plan offers a variety of asset class-based investment options from a variety of managers. Age-Based Options Aggressive Age-Based Path % Moderate Age-Based Path % OH CollegeAdvantage 529 Savings Pla Vanguard Agg % OH CollegeAdvantage 529 Savings Pla Vanguard Mod % OH CollegeAdvantage 529 Savings Pla Vanguard Agg % OH CollegeAdvantage 529 Savings Pla Vanguard Mod % OH CollegeAdvantage 529 Savings Pla Vanguard Agg % OH CollegeAdvantage 529 Savings Pla Vanguard Mod % OH CollegeAdvantage 529 Savings Pla Vanguard Agg % OH CollegeAdvantage 529 Savings Pla Vanguard Mod % OH CollegeAdvantage 529 Savings Pla Vanguard Agg 19+ 0% OH CollegeAdvantage 529 Savings Pla Vanguard Mod 19+ 0% Conservative Age-Based Path The Advantage Age-Based Path OH CollegeAdvantage 529 Savings Pla Vanguard Cons % OH CollegeAdvantage 529 Savings Pla Advantage % OH CollegeAdvantage 529 Savings Pla Vanguard Cons % OH CollegeAdvantage 529 Savings Pla Advantage % OH CollegeAdvantage 529 Savings Pla Vanguard Cons % OH CollegeAdvantage 529 Savings Pla Advantage % OH CollegeAdvantage 529 Savings Pla Vanguard Cons % OH CollegeAdvantage 529 Savings Pla Advantage % OH CollegeAdvantage 529 Savings Pla Vanguard Cons 19+ 0% OH CollegeAdvantage 529 Savings Pla Advantage % Risk-Based Options OH CollegeAdvantage 529 Savings Pla Vanguard Cons Gr Idx 25% OH CollegeAdvantage 529 Savings Pla Vanguard Mod Gr Idx 50% OH CollegeAdvantage 529 Savings Pla Wellington Option 65% OH CollegeAdvantage 529 Savings Pla Vanguard Gr Idx 75% Asset Class-Based Options OH CollegeAdvantage 529 Savings Pla Fifth-Third 529 CD OH CollegeAdvantage 529 Savings Pla Vanguard MMkt OH CollegeAdvantage 529 Savings Pla Vanguard Infl-Protct OH CollegeAdvantage 529 Savings Pla Vanguard Income OH CollegeAdvantage 529 Savings Pla Pimco Total Return OH CollegeAdvantage 529 Savings Pla Vanguard Agg Gr OH CollegeAdvantage 529 Savings Pla Vanguard 500 Idx OH CollegeAdvantage 529 Savings Pla Windsor II Opt OH CollegeAdvantage 529 Savings Pla Morgan Growth Opt OH CollegeAdvantage 529 Savings Pla Vanguard ExtdMkt Idx OH CollegeAdvantage 529 Savings Pla Oppenheimer Main St Small Cap OH CollegeAdvantage 529 Savings Pla Vanguard DvpMkt Intl OH CollegeAdvantage 529 Savings Pla GE Inst International /Fixed Source: Morningstar Analysis: Manning & Napier Active/Passive Security Selection: The plan provides exposure to managers who employ both active management (Oppenheimer, PIMCO, GE Asset Management) and indexing (Vanguard). Fees: Program management fees of 0.14%-0.19%. Expenses of the underlying investments are approximately 0.26%-0.39% for the Advantage multi-manager option, 0.05%-0.29% for the Vanguard options, 0.56%-0.64% for the PIMCO options, 0.89% for the Oppenheimer option, and 0.55% for the GE option. Total expenses range from 0.19%-1.04%, except for the CD and savings account options from Fifth-Third Bank which are free of charge (i.e., free of program management fees and underlying investment fees. Pros: The plan provides exposure to both passively managed Vanguard and an actively managed multi-manager age-based option. Three Vanguard age-based options allow individuals to choose the glide path that best meets their risk tolerance. The multi-manager Advantage option provides an alternative to those seeking an age-based fund that provides active management. In addition, the plan includes a number of Vanguard, Oppenheimer, GE Asset Management, and PIMCO asset class options for those who want to manage their own asset allocation. Fees are reasonable. Cons: The multi-manager Advantage age-based option is not offered under multiple risk tolerances for investors who would rather pursue an active, multi-manager approach under a more conservative or more aggressive path. For More Information: 6

8 SCHWAB 529 COLLEGE SAVINGS PLAN (KANSAS) The Investment Options: The Schwab 529 College Savings Plan offers five risk-based portfolio options (Aggressive, Moderately Aggressive, Moderate, Moderately Conservative, and Conservative), age-based options at four different risk tolerances that get more conservative as the target date approaches, and two asset-class based options (Short-Term Bond and Money Market). Age-Based Options Aggressive Age-Based Path % Moderately-Aggressive Age-Based Path % KS Schwab 529 College Savings Plan AGG AB 0-8 Agg 92% KS Schwab 529 College Savings Plan MAgg AB 0-11 MAgg 77% KS Schwab 529 College Savings Plan Agg AB 9-11 Mod Aggr 77% KS Schwab 529 College Savings Plan MAgg AB Mod 58% KS Schwab 529 College Savings Plan AGG AB Mod 58% KS Schwab 529 College Savings Plan MAgg AB Con 0% KS Schwab 529 College Savings Plan AGG AB Mod Con 38% KS Schwab 529 College Savings Plan MAgg AB 18+ S/T 0% KS Schwab 529 College Savings Plan AGG AB 18+ S/T 0% Moderate Age-Based Path Moderately-Conservative Age-Based Path KS Schwab 529 College Savings Plan MOD AB 0-8 Mod 58% KS Schwab 529 College Savings Plan MCon AB 0-14 MCon 38% KS Schwab 529 College Savings Plan MOD AB 9-14 Mod Con 38% KS Schwab 529 College Savings Plan MCon AB Con 0% KS Schwab 529 College Savings Plan MOD AB Con 0% KS Schwab 529 College Savings Plan MCon AB 18+ S/T 0% KS Schwab 529 College Savings Plan MOD AB 18+ S/T 0% Risk-Based Options KS Schwab 529 College Savings Plan Schwab Pl Cnsv 19% KS Schwab 529 College Savings Plan Moderately Cons 38% KS Schwab 529 College Savings Plan Moderate 58% KS Schwab 529 College Savings Plan Moderately Aggr 77% KS Schwab 529 College Savings Plan Schwab Pl Agg 92% Asset-Class Based Options KS Schwab 529 College Savings Plan Schwab Pl Money Mkt KS Schwab 529 College Savings Plan Schwab Pl S/T /Fixed Source: Morningstar Analysis: Manning & Napier Active/Passive Security Selection: The underlying managers of the Kansas Schwab 529 Plan generally employ active security selection. The portfolios consist of mutual funds from several fund families, including Transamerica Corporation, Schwab, Laudus, American Century, American Beacon, Baron, Metropolitan West Asset Management, and PIMCO mutual funds. Fees: Program management fees of 0.20%. Expense ratios of the underlying investments range from 0.22% %. Pros: The Schwab plan includes mutual funds from multiple fund families rather than solely offering proprietary funds, has no state residency requirements, no enrollment/application or maintenance fees, reasonable management fees, and consists of funds with active security selection (as opposed to index funds). In addition, the plan offers multiple age-based options, allowing individuals to choose the glide path that best meets their risk tolerance while leaving the on-going asset allocation decisions to a professional manager. Cons: The Schwab plan does not allow individuals to select various asset class funds and manage their own asset allocation. For More Information: 7

9 UTAH EDUCATIONAL SAVINGS PLAN (UESP) The Investment Options: The Utah Educational Savings Plan offers five age-based options for investors with various risk tolerances that get more conservative as the target date approaches. The equity exposure of Option 2 and 3 solely consists of domestic large cap stocks, while Options 7, 8, and 9 provide diversified exposure to small, mid, and large cap stocks, as well as domestic and international stocks. Under Option 12, investors also have the ability to make their own asset allocation primarily using individual Vanguard stock and bond funds. Other options include investing in the State Treasurer s Investment Fund (consisting of certificates of deposit, money market securities, commercial paper, short-term corporate notes, and obligations of the U.S. Treasury and agencies of the U.S. Government), three equity index portfolios, one fixed income index portfolio, and an FDIC-insured savings account with Zions First National Bank. Age-Based Options Option 2: S&P 500 Index, Bonds, Savings % Option 3: S&P 500 Index Emphasis, Bonds, Savings % UT Educational Savings Plan Trust Opt 2 Age 0-3 yrs 95% UT Educational Savings Plan Trust Opt 3 Age 0-3 yrs 100% UT Educational Savings Plan Trust Opt 2 Age 4-6 yrs 85% UT Educational Savings Plan Trust Opt 3 Age yrs 79% UT Educational Savings Plan Trust Opt 2 Age 7-9 yrs 75% UT Educational Savings Plan Trust Opt 3 Age yrs 64% UT Educational Savings Plan Trust Opt 2 Age yrs 65% UT Educational Savings Plan Trust Opt 3 Age yrs 49% UT Educational Savings Plan Trust Opt 2 Age yrs 50% UT Educational Savings Plan Trust Opt 3 Age % UT Educational Savings Plan Trust Opt 2 Age yrs 25% UT Educational Savings Plan Trust Opt 3 Age 4-6 yrs 100% UT Educational Savings Plan Trust Opt 2 Age 19+ 0% UT Educational Savings Plan Trust Opt 3 Age 7-9 yrs 95% Option 7: Diversified Allocation A Option 8: Diversified Allocation B UT Educational Savings Plan Trust Opt 7 Age 0-3 yrs 99% UT Educational Savings Plan Trust Opt 8 Age 0-3 yrs 78% UT Educational Savings Plan Trust Opt 7 Age 4-6 yrs 99% UT Educational Savings Plan Trust Opt 8 Age 4-6 yrs 68% UT Educational Savings Plan Trust Opt 7 Age 7-9 yrs 80% UT Educational Savings Plan Trust Opt 8 Age 7-9 yrs 58% UT Educational Savings Plan Trust Opt 7 Age yrs 60% UT Educational Savings Plan Trust Opt 8 Age yrs 49% UT Educational Savings Plan Trust Opt 7 Age yrs 40% UT Educational Savings Plan Trust Opt 8 Age yrs 39% UT Educational Savings Plan Trust Opt 7 Age yrs 20% UT Educational Savings Plan Trust Opt 8 Age yrs 29% UT Educational Savings Plan Trust Opt 7 Age 19+ 0% UT Educational Savings Plan Trust Opt 8 Age 19+ 0% Option 9: Diversified Allocation - Bond Emphasis UT Educational Savings Plan Trust Opt 9 Age 0-3 yrs 49% UT Educational Savings Plan Trust Opt 9 Age 4-6 yrs 39% UT Educational Savings Plan Trust Opt 9 Age 7-9 yrs 29% UT Educational Savings Plan Trust Opt 9 Age yrs 20% UT Educational Savings Plan Trust Opt 9 Age yrs 10% UT Educational Savings Plan Trust Opt 9 Age yrs 0% UT Educational Savings Plan Trust Opt 9 Age 19+ 0% Risk-Based Options UT Educational Savings Plan Trust UESP Option 12 (Custom Allocation) Asset-Class Based Options Option 1: Public Treasurer's Investment Fund (PTIF) UT Educational Savings Plan Trust Option 5 () UT Educational Savings Plan Trust Option 11 (FDIC Insured Savings) UT Educational Savings Plan Trust Option 4 (S&P 500 Index) UT Educational Savings Plan Trust Option 6 (Equities - 10% Intl) UT Educational Savings Plan Trust Option 10 (Equities - 30% Intl) N/A /Fixed Source: Morningstar Analysis: Manning & Napier Active/Passive Security Selection: With the exception of the Public Treasurer s Investment Fund and FDIC insured savings account, Vanguard is the underlying manager of the remainder of the Utah 529 Plan. Vanguard typically employs a passive approach to security selection (i.e., indexing). Fees: Program management fees of 0.15% %. Expense ratios of the underlying investments range from 0.025% %. Total expenses range from 0.18% % for Option 1 - Option 11 and 0.22% % for Option 12. Pros: The Utah plan is one of the lowest cost plans in the 529 universe no enrollment/application fee, low account maintenance fee, and low expenses. The plan offers multiple age-based options, allowing individuals to choose the glide path that best meets their risk tolerance. In addition, the plan allows individuals to build customized portfolios. Cons: The underlying investment choices are primarily index-based Vanguard funds. In addition, the communication of the available investment options can be confusing to individuals. For More Information: 8

10 VANGUARD 529 COLLEGE SAVINGS PLAN (NEVADA) The Investment Options: Nevada s nationally branded Vanguard 529 College Savings Plan offers a straight forward, low cost, index-based option for college saving. The plan includes three age-based options (Aggressive, Moderate, and Conservative), six risk-based options, and thirteen asset class options. Age-Based Options Exposure Age 0-5 Age 6-10 Age Age Age 19+ Vanguard Aggressive Age-Based Option 100% 75% 50% 25% 0% Vanguard Moderate Age-Based Option 75% 50% 25% 0% 0% Vanguard Conservative Age-Based Option 50% 25% 0% 0% 0% Risk-Based Options % Vanguard Income Portfolio 0% Vanguard Conservative Growth Portfolio 25% Vanguard Moderate Growth Portfolio 50% Vanguard STAR Portfolio 60% - 70% Vanguard Growth Portfolio 75% Vanguard Aggressive Growth Portfolio 100% Asset-Class Based Options Vanguard High Yield Bond Portfolio Vanguard Inflation-Protected Securities Portfolio Vanguard Total Bond Market Index Portfolio Vanguard Interest Accumulation Portfolio Vanguard 500 Index Portfolio Vanguard Growth Index Portfolio Vanguard Mid-Cap Index Portfolio Vanguard Morgan Growth Portfolio Vanguard Small-Cap Index Portfolio Vanguard Total International Stock Index Portfolio Vanguard Total Stock Index Portfolio Vanguard Value Index Portfolio Vanguard Windsor Portfolio /Fixed Source: Morningstar Analysis: Manning & Napier Active/Passive Security Selection: The Vanguard managed plan typically employs a passive approach to security selection (i.e., indexing). Fees: Program management fees are 0.44% for the age-based options and range from 0.44% % for the risk-based and asset class options, inclusive of underlying fund expenses. Pros: The plan provides a straightforward, indexed-based approach towards managing 529 college savings. The plan offers three age-based options, allowing individuals to choose the glide path that best meets their risk tolerance. In addition, the numerous asset class options allow experienced investors to make their own asset allocation decisions. Cons: The investment choices are primarily index-based and consist solely of Vanguard funds. For More Information: 9

11 VIRGINIA EDUCATION SAVINGS TRUST (VEST) The Investment Options: The Virginia Education Savings Trust (VEST) currently offers seven age-progressive investment options that get more conservative as the target date approaches. The underlying asset classes of the age-based funds are managed by a variety of managers, including both active and passive management styles: Vanguard Institutional Index Fund (Large Cap Domestic ), Rothschild Asset Management (Small/Mid Cap Domestic ), Vanguard Small Cap Index Fund (Small Cap Domestic ), Templeton Foreign Series (Non-U.S. ), Capital Research & Management/American Funds EuroPacific Growth Fund (Non-U.S. ), Western Capital Management/Western Core Bond Fund (), and Invesco (Stable Value). The risk-based options and six of the seven asset class-based options are index-based funds managed by Vanguard. The sole exception is the Socially Targeted Investment Portfolio which utilizes the Parnassus -Income Fund as its underlying investment. Age-Based Options Jan Jan Jan Jan Jan Jan Jan Jan 2012 Jan 2015 Jan 2018 Jan 2021 Jan 2024 Jan 2027 VA Education Savings Trust Eastern Shore (Ages 0-3*) 80% 70% 60% 50% 40% 25% 0% VA Education Savings Trust Alleghany (Ages 4-6*) 70% 60% 50% 40% 25% 0% VA Education Savings Trust Chesapeake (Ages 7-9*) 60% 50% 40% 25% 0% VA Education Savings Trust Potomac (Ages 10-12*) 50% 40% 25% 0% VA Education Savings Trust Southside (Ages 13-15*) 40% 25% 0% VA Education Savings Trust Blue Ridge (Ages 16-18*) 25% 0% VA Education Savings Trust Piedmont (Age 18+*) 0% Risk-Based Options % VA Education Savings Trust Conservative 20% VA Education Savings Trust Moderate 60% VA Education Savings Trust Aggressive 80% Exposure * Suggested age if an investor were enrolling today. Investors may choose a more conservative or aggressive option based on their risk tolerance. For example, an investor with a child age 5 could choose to be in the Chesapeake Fund rather than the Alleghany Fund in order to pursue a more conservative glide path. Asset-Class Based Options VA Education Savings Trust Money Market VA Education Savings Trust Inflation Protected VA Education Savings Trust Total Bond Mkt Idx VA Education Savings Trust Total Intl Idx VA Education Savings Trust Total Stk Mkt Idx VA Education Savings Trust REIT Idx VA Education Savings Trust Socially Targeted /Fixed Source: Morningstar Analysis: Manning & Napier Active/Passive Security Selection: The plan provides exposure to managers who employ both active management (Rothschild Asset Management, Templeton, Capital Research & Management/American Funds, Western Capital Management, Invesco) and indexing (Vanguard). Fees: Program management fees of 0.20%. Expenses of the underlying investments range from 0.10%-0.28% for the agebased portfolios and risk-based and asset class options and 0.06% % for the asset class-based. Total expenses range from 0.20%-1.00%. Pros: The plan offers age-progressive investment options, allowing investors to make a single decision at the investment outset and continue to hold that fund through the target date. The age-based investment options utilize multiple high quality underlying investment managers to provide diversified exposure to stocks and bonds. Cons: For those who may want to customize their own portfolios, the plan s Risk-Based and Asset Class-Based options consist primarily of Vanguard index options. Based on the recommended ages for the age-based portfolios, the equity exposure of the glide path appears to be on the high-end of what we would expect, particularly as college draws near. Investors may want to consider choosing the age-based option that is one step more conservative than the portfolio recommended by the Virginia Education Savings Trust. For More Information: 10