529 Tuition Savings Plans Reach $508B in Q2

From both an industry asset and account level perspective, 529 savings plans continue to expand to help families save for future education expenses.

529 savings plans are experiencing continued growth, as estimated net inflows totaled $3.6 billion in the second quarter of this year, compared with $2.1 billion in the first quarter, according to new data released by ISS Market Intelligence. 

As of June 30, 16.8 million accounts had invested $508 billion in assets in 529 savings and prepaid plans, according to data from ISS MI, which, like PLANSPONSOR, is owned by ISS STOXX.. According to ISS MI, 15.9 million accounts had invested $484 billion in 529 savings plans alone.  

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529 plans are tax-preferred savings plans that can be used by parents and others to save for college tuition costs. Prepaid tuition plans allow parents, grandparents and others to prepay tuition at today’s tuition rates at eligible public and private colleges or universities, helping them manage future education costs, according to FINRA. 

ISS MI found this increase in net inflows aligns with continued demand for 529s and more parents successfully using 529s for their intended purpose of saving for qualified educational expenses “to and through” 2024’s market and economic volatility. 

529 plans are qualified education expense programs that permit contributions to tax-advantaged accounts that can be invested in and used to pay for the qualified education expenses of the beneficiary. The SECURE 2.0 Act of 2022 also allows certain assets in a 529 plan maintained for at least 15 years for a designated beneficiary to be rolled over on a tax-free basis to a Roth IRA for the same beneficiary. 

“The overall outlook for 529s continues to brighten, especially with the expansion of qualified expenses to certain types of qualified distributions from 529s to Roth IRAs,” wrote Paul Curley, director of 529 and ABLE research at ISS MI, in a recent report. “As 529s expand from a product for education financial planning to retirement financial planning in 2024, we expect new energy by new stakeholders to drive growth over the next three to five years.” 

In addition to 529 investment, 180,748 accounts invested $2.032 billion in ABLE accounts, the research found. 

Achieving a Better Life Experience accounts are tax-advantaged savings accounts for people with disabilities and their families. The Achieving a Better Life Experience Age Adjustment Act goes into effect in 2026, increasing the age threshold for people to save in and benefit from ABLE accounts to 46 from 26, providing any individual whose disability onset began prior to turning 46 the opportunity to open an ABLE account.  

The five largest 529 Savings Plan program managers by total assets through Q2 include: 

  1. Ascensus: $131.4 billion  
  2. American Funds: $93.2 billion 
  3. Fidelity: $45.0 billion 
  4. TIAA: $44.7 billion 
  5. Union Bank & Trust: $29.6 billion 

          In addition, the five largest 529 savings plans by second quarter assets include: 

          1. CollegeAmerica 529 Savings by American Funds: $93.2 billion 
          2. New York 529 Direct by Vanguard: $42.0 billion 
          3. Vanguard 529 by Vanguard: $35.7 billion 
          4. My529 by State of Utah: $24.0 billion 
          5. UNIQUE College Investing Plan by Fidelity: $21.5 billion 

                  As student loan debt is frequently identified as one of the largest causes of financial stress and impediments to retirement savings among U.S. workers, parents can help their children avoid student debt by opening a 529 account, according to Curley.  

                  The IRS also published guidance earlier this week to assist plan sponsors that are providing or planning to provide retirement plan matching contributions based on employees’ qualified student loan payments, as permitted under SECURE 2.0.  

                  Nordstrom Suit, HP Revival Add to 401(k) Forfeiture Cases

                  A Wagner Law Group attorney says plan sponsors should review their plan documents, as Nordstrom is the latest employer challenged over its use of forfeited funds.

                  New and ongoing litigation regarding plan sponsors’ use of forfeitures under the Employee Retirement Income Security Act means plan sponsors should carefully review the forfeiture provisions of their defined contribution plans, an ERISA attorney says.

                  Michael Schloss, of counsel at the Wagner Law Group, says use of forfeiture amounts is “built into the structure of these types of plans.”

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                  In a law alert from his firm this week, Schloss also wrote that “consideration should be given to whether fiduciary decisions relating to forfeitures could be seen as relieving the employer of an obligation to the plan and imposing additional costs on participants and whether action should be taken now that might mitigate any litigation risk going forward.”

                  The Wagner alert came just days after a new fiduciary breach suit was filed against retailer Nordstrom Inc., citing use of forfeitures, the costs of a managed account service and excessive recordkeeping fees,  and shortly after the revival of an earlier forfeiture case against HP Inc., which was initially dismissed last month.

                  The new case, Curtis McWashington et al. v. Nordstrom Inc. et al, was filed on August 12 in U.S. District Court for the Western District of Washington. The plaintiffs are seeking class action status.

                  Represented by lawyers from Keller Rohrback LLP, Walcheske & Luzi LLC and Schneider Wallace Cottrell Konecky LLP, the plaintiffs claim the retailer, its board of directors and the Nordstrom 401(k) Plan Retirement Committee “failed to fulfill their fiduciary duties to prudently and loyally ensure the Plan’s total recordkeeping and other administrative expenses were reasonable and not excessive, as well as engaged in self-dealing with regard to Plan forfeitures in violation of ERISA fiduciary prohibited transaction rules.”

                  The Nordstrom plan had 11,352 participants and $3.9 billion in assets at the end of 2023, according to the plan’s 2023 Form 5500.

                  The case against HP is an amended version of the suit that was dismissed. The new suit was filed July 17 by plaintiff Paul Hutchins, as a representative of a class of participants and beneficiaries on behalf of the HP Inc. 401(k) Plan in U.S. District Court for the Northern District of California. The court gave HP until Friday to respond and scheduled further proceedings on the company’s motion to dismiss.

                  Hutchins is represented by the law firm Hayes Pawlenko LLP.

                  Schloss, in an interview with PLANSPONSOR, says the range of forfeiture cases pending against Nordstrom and other employers, including Bank of America Corp., Intuit Inc. and Qualcomm Inc., stem from IRS rules for the plans to qualify for tax-preferred status under ERISA that include permitted uses of forfeiture amounts.

                  While he says the various federal courts in which similar ERISA cases about forfeitures are pending will have to sort out how those funds fit into the fiduciary duties of prudence and loyalty set out in Title I of ERISA, he believes, ultimately, “this can be resolved in plan documents.”

                  Haffner Law PC is representing the plaintiffs in the BofA suit, and Hayes Pawlenko is leading the litigation in the Intuit and Qualcomm suits.

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