Post-election, industry looks to broaden scope of plans

Sensing an opportunity when a new administration and Congress take over in January, the Section 529 college savings plan industry is pushing for an expansion of current rules and regulations governing the programs. "Our goal is to continue to improve the plans by broadening their flexibility and appeal," said Jacqueline "Jackie" Williams, Columbus-based executive director of the Ohio Tuition Trust Authority, which oversees more than $5 billion in the state's college savings plans. Many state officials, facing a flood of inquiries from 529 account holders unable to make additional changes to tanking accounts, would, for example, like to see a revision of the Internal Revenue Service rule that limits asset allocation changes to a 529 account to once a year.
"That's the No. 1 issue," said Robin Lott, Lansing-based contract administrator of the Michigan Education Savings Program, which has about $1.6 billion in assets. "You should have the ability to re-balance your account more than once a year."
"There's no good rationale for keeping that kind of restriction," agreed Mary Morris, Richmond-based executive director of the Virginia College Savings Plan, the nation's largest, with more than $25 billion in assets. "We've proposed allowing account holders to make a change one time each quarter."

QUALIFIED EXPENSES

Industry officials also want to expand the scope of qualified 529 expenses to include the purchase of computers and to allow 529 accounts to pay for a broader range of educational opportunities. Allowing computers to be considered a qualified expense may require legislative action, said Ms. Williams, who is also a member of the Lexington, Ky.-based College Savings Plan Network's executive committee as well as its immediate past chairwoman. "We've had a number of conversations [in Washington], and that's the sentiment. I think everyone understands we want to make these programs more usable," she said. Industry experts also believe the new administration and Congress may be sympathetic to appeals to allow 529 accounts to be used to pay for adult job training. "There's real potential for 529 accounts to be used in other settings, such as re-training the work force," said James "Jamie" Canup, Richmond-based partner for Troutman Sanders LLP of Atlanta, who has represented state 529 plans and program mangers for more than a decade. "In light of what's happening with the economy," Mr. Canup said, "Democrats may be in-clined to think about ways to help with a range of educational expenses, and a broader way to look at 529s could be part of that." Peter Mazareas, vice chairman of the Washington.-based College Savings Foundation and chief executive of Nahant, Mass.-based Strategic Advancement Group Inc., agreed. "In light of this economic environment, expanding the definition of a qualified accredited institution or program for lifelong learning is critical," he said. "529s could be a vehicle for that effort." Mr. Mazareas also noted that Rep. Rahm Emanuel, D-Ill., who will become White House chief of staff in January, has expressed an interest in establishing a tax-free savings account for lifelong learning. "529s could serve as the mechanism for that," Mr. Mazareas said. "That's something we'd like to see in the discussion." The 529 industry also would like to see employers be allowed to make contributions to 529 accounts as a benefit for employees, similar to the tax-advantaged contributions they make to 401(k) accounts or to health insurance plans. "We would like to see Congress encourage employers to provide 529s as an employee benefit without tax consequences," Mr. Mazareas said. Employers could also be given tax credits for contributing to a 529 scholarship or a matching fund, Ms. Williams suggested. Another target for the 529 industry's Washington wish list is the Saver's Credit, a tax incentive that encourages low-income families to save for their retirement. Under current law, the Saver's Credit — a non-refundable credit that can be as much as $2,000 — is not applicable to 529 plans. The proposal, noted James Delaplane Jr., a partner at the Washington law firm Davis & Harman LLP, "would make it easier for lower-income families to participate in saving for college, and that could be of interest to Democratic policymakers." In fact, Mr. Delaplane did not anticipate policy objections from the Democratic administration to the 529 industry's overall agenda. The biggest challenge facing the 529 industry, according to Mr. Delaplane, a Section 529 expert and veteran Capitol Hill observer, will be "finding the right legislative vehicle" to which 529 legislation can be attached as a "rider." But in the face of the financial crisis, industry leaders appear to be realistic about their place in the Washington pecking order. "Congress and the administration have so many problems that I doubt that college savings or the plight of the millions of people who have tried to be responsible will be on anyone's list of priorities," said Jim Lynch, a trustee for the Fairbanks-based Education Trust of Alaska, which oversees about $2 billion in the state's college savings plans. "When the dust settles, we can work out what is fair and equitable." "It's a very difficult environment because of the crisis," said Mr. Mazareas. "It would be nice to get things done, but I'm not optimistic." "We're going to redouble our efforts to meet with new members in Washington and find out how much they know about 529 savings plans," Ms. Williams said. "We're aware of how many significant issues need to be addressed. But we also know there's going to be a need to provide more focus on savings, and we're hopeful that the real promise of the plans has only just begun." E-mail Charles Paikert at cpaikert@investmentnews.com.