Nebraska college saving plans get bronze rating

2013-10-22T15:15:00Z 2015-01-22T17:03:10Z Nebraska college saving plans get bronze ratingBy RICHARD PIERSOL / Lincoln Journal Star JournalStar.com
October 22, 2013 3:15 pm  • 

Two of Nebraska's 529 plans -- tax-advantaged saving plans for higher education -- are among Morningstar's bronze medal winners for 2013.  Two other plans from other states, but managed by Union Bank and Trust of Lincoln, also made the bronze list. 

Morningstar's annual list of best 529 plans is followed closely by the financial industry, educators and people saving for college.  The funds are called 529 because that's the section of the Internal Revenue Service code under which they were created in 1996.

Only 32 plans of more than 100 examined were medalists this year, up from 25 last year. Only nine were among highest rated gold or silver plans. 

The two medal winners from Nebraska were the Nebraska Educational Savings Trust Direct Plan, sold directly to savers, and the Nebraska Educational Savings Trust Adviser Plan, sold by financial advisers.

State Treasurer Don Stenberg is the trustee, and First National Bank of Omaha manages the funds.

"We're very pleased with that rating and hope to do even better in the future," Stenberg said.

The two NEST funds gained ground in part because the state  made them more attractive to investors by doubling the state income tax deduction, maxing out at $10,000 for couples filing jointly.  

Stenberg initiated the higher deduction, which was sponsored in the Legislature by state Sen. Galen Hadley and prioritized by Sen. Lydia Brasch.  Stenberg cautioned that the higher state income tax deduction doesn't go into effect until the 2014 tax year for taxes due in April 2015.

"The plans also swapped out some lackluster investment choices for better ones," wrote Laura Pavelenko Lutton, who covers the field for Morningstar. "These changes together improve the likelihood of college savers' success and upped the plans' ratings from Neutral."

Stenberg said the investment changes that made a difference were, in the direct fund, dropping the Tributary Core Equity mutual fund and replacing it with the Vanguard Equity-Income Fund.  In the adviser plan, the Tributary Core Equity Fund was replaced with the Dodge & Cox stock fund, he said. 

Nebraska's NEST plans have 208,000 accounts nationwide, 58,000 accounts from Nebraska. That demonstrates not only Nebraskans, but investors across the country see the value in the Nebraska plans, Stenberg said.

Typically, anyone can invest in any state's plans, but in most cases, only a state's residents get all the benefits from a home-state plan, for example, the Nebraska state tax deduction. 

The two bronze medal plans managed by Union Bank and Trust were the College Counts 529 direct plan, from Alabama, and Bright Directions College Savings Program of Illinois.  

"The increase in the number of medalist plans reflects significant improvements to 529 plans," Lutton wrote. "Very few 529 plans still include options that have performed poorly due to weak management or extremely high fees."  As such, only four of the 64 plans rated earned Negative ratings, and 28 plans earned Neutral ratings. Morningstar did not rate 21 of the industry's smallest plans.

The gold and silver plans "exhibit strong menus of investment options, solid management and reasonable fees," Lutton wrote.

"The 22 plans awarded bronze medals have similar characteristics, but Morningstar's analysts have less confidence that they'll outperform their peers on a risk-adjusted basis over a full market cycle."

Union Bank's College Counts 529 adviser plan in Alabama received a neutral rating, as did Nebraska's TD Ameritrade 529 College Plan, also managed by First National. 

Among the competitors of fund managers such as Union Bank and Trust and First National of Omaha are heavyweights of the financial industry, includingg TIAA-CREF, Fidelity Investments, Franklin Templeton, T. Rowe Price and Merrill Lynch.

Reach Richard Piersol at 402-473-7241 or at dpiersol@journalstar.com

Copyright 2015 JournalStar.com. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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