Md. college investment fund to shop for manager

THE BALTIMORE SUN

Maryland officials plan to shop for a better deal for parents and others who have invested in the state's college savings plan, now managed by T. Rowe Price Associates Inc. of Baltimore.

The College Savings Plans of Maryland board will solicit bids this month from the financial services industry to manage more than $600 million in assets in its 529 plan, which is projected to grow to $1 billion in two years. Individuals and families can invest in the plan and enjoy tax breaks as long as the money goes to pay for tuition and related expenses.

"The growth of the plan has far exceeded anyone's expectations, and administrative costs should come down as a result," said Norman Freidkin, the board's vice chairman. "We are focused on making sure there is disclosure and low costs."

Such investment vehicles - called 529 plans after a section of the federal tax code - have come under increased scrutiny as they gained popularity in the face of rising college costs. The Securities and Exchange Commission formed a task force last year to examine whether high fees in some plans take away from tax benefits.

T. Rowe Price won a five-year contract in 2001 to manage the Maryland College Investment Plan. The mutual fund company intends to bid again for the job, said Steven E. Norwitz, spokesman for T. Rowe Price. The board also could opt to renew the contract for another two years through July 2008.

'Significant account'

"That's a significant account," Norwitz said. He declined to say if Price would lower fees, though he pointed out that the state gets more than half of the enrollment fee, typically $75, that participants pay.

Maryland's plan also charges a percentage-based management fee and for some investors a $30 annual fee to maintain the account. By comparison, Virginia's CollegeAmerica plan costs $10 for enrollment and $10 a year to maintain, and contributions may be subject to sales charges.

The 529 plans have become big business, amassing $45.1 billion in assets through the end of September, according to the Financial Research Corp. in Boston. Investors can withdraw their money tax-free at the federal level when paying educational expenses.

Maryland residents participating in its 529 plan can deduct up to $2,500 in contributions per beneficiary each year from their income on their state tax return.

Consumers have benefited from competition that has driven down fees, said Joseph F. Hurley, founder of Savingforcollege.com, an online resource. Still, investors should choose their plan carefully, as fund performance and rules vary as well.

Lower fees sought

"There is certainly a trend for many states to look to reduce their fees and expenses because it's such a visible point of comparison between plans," he said.

"Fees affect investment performance, but underlying investment quality and state tax benefits are also major considerations - all of these things have to be thrown into the mix."

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