October 8, 2015
Lynne Ward, Executive Director, Utah Educational Savings Plan
Below is a full transcript of this video presentation. It has not been edited or reviewed for accuracy or readability.
Lynne Ward: Good afternoon, everyone. My name’s Lynne Ward. I’m the Executive Director of the Utah Educational Savings Plan, or UESP for short. It’s the Utah 529 program. And Margaret asked me to talk about 529 Plans in general. So I’ll start out as that’s the funnel. I’ll start that high level, about UESP, and then finally about how we have partnered with foundations and other nonprofits in providing a CDA or CSA platform.
I know many of you are working in a 529 Plan or with the state. And I know many of you know about the details, but maybe some of you don’t. So just to level set about 529 Plans, the money in the plan grows tax free. It’s technically called tax deferred. And at the point in time when the withdrawal is made, if the funds are used at a qualified institution—that would be an institution of higher education where federal financial aid can be used, in other words a Pell Grant or Stafford Loan could be used—and the money is used for tuition, books, fees, supplies, other equipment if required by the class, if a computer is actually required by the class—That is one of the changes we’re trying to make nationally, that a computer is just on its own considered a qualified expense. You can’t get through college these days without a computer. But right now it’s only qualified if the class specifically requires it.
The 529 Plans have age-based options. That means that it’s the equivalent to a target-date retirement fund. So when the child is young, most of the investments are in equities. And then over time the plan automatically moves the money into fixed income funds or into stable value or some kind of principle protection kind of fund. So that does mean that there’s opportunity for investment growth. And I’ll give you an example. This is UESP’s experience. The other 529 plans will have different experience. And you can look at any of the home pages for investment performance. But for UESP, the five-year average annualized return ranged from, depending on the investment option selected, ranged from .4% or 4/10 of 1% up to 13.13%. That’s averaged annualized over the last five years.
Many of the plans, like I mentioned, have some kind of principle protection investment option or FDIC insured savings option. So think about this. Your money is in a 529 Plan not making a ton of money because the interest rates are so low. But in UESP, the average over the last five years is .6% or 6/10 of 1% per year. And then, again, that’s growing tax deferred or ultimately tax free if used for qualified expenses. Most plans have low fees. So they are very attractive. I think the states around the nation have been trying to put pressure on their program providers to get the fees as low as possible so that the money stays in the account for the college expenses later on.
Well, about UESP. So that next level of the funnel. We are a 529 Savings Plan as opposed to a prepaid program. Some of the states have both. I think some just have one. Washington state, for example, has a prepaid program. That means that you buy credits, tuition credits at today’s value. The money’s invested. And then at the point in time where the individual, the beneficiary needs the money for the higher education expenses, then those credits are cashed in and they pay for so many tuition credits. But the problem with those, many of them are, they’ve implemented a moratorium on new enrollment because the tuition inflation has exceeded the growth in the investments. So you don’t see states actually adding. They’re actually putting a moratorium on those kinds of plans.
So ours is a savings plan. I’ll read you some excerpts from our mission and vision statements. Provide the highest quality 529 Educational Savings Plan. Fact, we are one of the top four plans rated by Morningstar. We’re rated as gold. Clark Howard says that we are the best plan in the country. We want to operate our program at the lowest possible cost. One of the things we are known for is our low fees. We don’t have an enrollment fee or signup fee. We don’t have a minimum balance or a minimum contribution requirement. We are also trying to deliver innovative investment and technology strategies and maintain the highest level of integrity, discipline, and stewardship for our account owners. We are part of the Utah System of Higher Education. So we are the record keeper for the Utah 529 Plan, or UESP. Means we do the computer programming in-house. We have the computer system. It’s a proprietary system. We operate the website, all the marketing. We make the daily investment trades. I think yesterday we invested two million dollars, opened up about 100 new accounts, and eight accounts were closed. There is no requirement, just like really any 529 Plan, that the organizations or beneficiaries be Utah residents. And we have a lot of non-Utah residents that are participants in Utah Educational Savings Plan.
We are the fourth largest direct sell plan in the country. We have 8.2 billion dollars assets under management. Those monies are with Vanguard Mutual Fund, Dimensional Fund Advisors, US Bank, Sallie Mae Bank. Those two banks provide an FDIC insured account to us. And then we also have some money with our Utah State Treasurer’s office. We have 294,000 accounts. Well, December’s a big month for all the 529 Plans. I’m hoping we get to 300,000 accounts by the end of the year, but it might spill into January.
So back to the fact that we are a record keeper. That does mean that we have the decision making ability to do some cool things. And one of the cool things—and this is the next step of the funnel—is that several years ago we started to develop a CDA or CDA platform. And so if you think about CDA’s or CSA’s, there are three parties that are needed. One is the sponsor. Clint’s case and Gloria’s case for the sponsor. You need a funder. Somehow money always seems to be the big barrier. But third you need the platform provider. And that’s what UESP has done. We’re the platform provider. So we have a turnkey approach to CDA’s. And the handout that CFED had and they referred to just before lunch, this is perfect. And if you want to pull this out. I think it’s the second page and it’s the landscape page. UESP provides the omnibus 529 account, entity owned 529 account, and the parent/guardian owned 529 account.
So in the case of the omnibus account, the sponsor can open up an omnibus account if the beneficiary does not have a Social Security number, like Linda was talking about. That can be kept track of in a separate list. The entity owned account, the example here is the I Have a Dream Foundation headquartered in New York City is using UESP’s platform. What they do is in this case the foundation owns the account for a named beneficiary. So it does mean they have the Social Security number. And when the family meets with the foundation or its partners that are on the ground, the account has already been opened up for the beneficiary. So they log in. And the student and the mom or dad or whoever is there to, you know, bring the child in, they see that the account has already been set up.
The next column over, the parent/guardian owned 529 account, that’s just a regular individual account. And we’ve developed the capability so that the sponsor can look at the family owned account and see the link. They can do a match if they want to. They don’t have to. And then the family can see online how much the sponsor has invested for that child. And so we’ve actually built online, there’s a pie chart that shows, say, 25 dollars owned by the family, 75 dollars in the scholarship account, or the foundation owned account. So it’s a great way to visually show the child and the family that there’s more being saved on behalf of that child than just what the family has put in.
We have reporting capabilities so that the sponsor can look at contributions that are made, any other transactions. In the case of the foundation owned account, the withdrawals can only be made by the foundation, the withdrawal requests. And those funds can only be sent to the institution. So there’s no possibility of the family taking the money out for other purposes.
So with that, I’ll wrap up and just indicate that we are proud to be a contributor to the CDA solution. And we think we have a great program. And just happy to be on this panel with the rest of these people. Thanks, Margaret.