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Tennessee college savings plan will end in May

By: Mary Fortune
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Steve Curry

Tennessee’s 529 college savings plan, which allows parents to save tax-exempt money against the future costs of higher education, will end in May after years of low enrollment and poor returns, said state officials and investment experts.

“Ours just hasn’t been strongly invested in, and what investment there has been hasn’t performed well,” said state Sen. Bo Watson, R-Hixson. “It has just been underutilized by Tennesseans.”

The state, however, will retain its prepaid tuition program that lets parents buy into future state university tuition costs at today’s prices, said Steve Curry, assistant to the state treasurer.

As they prepare to dissolve Tennessee’s 529 plan, state officials are urging investors to roll their money into Georgia’s plan, Mr. Curry said. That plan has about 10 times the assets of Tennessee’s plan, he said.

“Georgia was willing to work with us in terms of working toward a college savings program,” Mr. Curry said. “We’re a relatively small savings plan with less than $50 million. It’s hard for us to have a competitive program based on the small size of our assets.”

A letter went out this week to the roughly 5,000 participants in Tennessee’s 529 plans, which are named for their place in the federal tax code. Both the Tennessee and the Georgia plans are administered by TIAA-CREF.

Tennessee officials will receive monthly and quarterly reports from Georgia on the fund’s performance, Mr. Curry said, and will have a role in monitoring the program. But Tennessee 529 participants can choose to invest in any similar program in the country, said Patrick Garrett, senior investment consultant with Robert W. Baird & Co. in Nashville.

“Most of the (529) plans we work with are from other states,” he said. “We thought the TIAA-CREF plan was somewhat inferior.”

The plan doesn’t have as many investment options as some other states, he said.

One of the hurdles the Tennessee 529 plan faced was the lack of an income tax in the state, said Doug Chittenden, president of Tuition Financing Inc., a subsidiary of TIAA-CREF. Tennessee could offer no state income tax deduction for participation in the 529 plan, he said, a perk that draws many to the Georgia plan.

And many Tennesseans who might have gone with the 529 plan decided instead to use the prepaid tuition plan, he said.

“I just don’t think the fundamentals were there to attract the growth that was needed over the long run to keep it competitive,” Mr. Chittenden said of Tennessee’s 529 pan.

Mr. Curry said Tennessee officials are hoping the Tennessee-Georgia 529 program might even become a regional program with an asset base that would allow even lower fees and greater options.

“Maybe some other states will want to participate,” he said.