As assets surpass $400B, analysts develop 4-factor measurement tool for investors
Morningstar releases the Morningstar Analyst Ratings for 62 of the largest 529 plans as assets cross the $400 billion threshold for the first time.
CHICAGO, Oct. 26, 2021 /PRNewswire/ — Morningstar, Inc. (Nasdaq: MORN), a leading provider of independent investment research, today announced Morningstar Analyst Ratings™ (Analyst Ratings) for 62 of the nation’s largest 529 plans, investment accounts that offer tax benefits when used to pay for qualified education expenses such as college. These 62 plans represent approximately 97% of 529 plan assets, which total more than $437 billion as of Aug. 31, 2021. The qualitative Analyst Rating has five tiers—Gold, Silver, Bronze, Neutral, and Negative. This year, Morningstar manager research analysts awarded three Gold ratings, 11 Silver ratings, 18 Bronze ratings, 23 Neutral ratings, and seven Negative ratings to 529 plans.
“The industry standard for 529 plans continues to rise as plans make enhancements, which should drive better outcomes for education savers over the long haul,” said Adam Millson, manager research analyst on Morningstar’s multi-asset and alternative strategies team. “Therefore, it has made it harder for some plans to keep up with structural flaws like uncompetitive fees, outdated glide paths, or subpar oversight of the plan—a factor that is especially important when changes are being implemented.”
Today, Morningstar published a Fund Spy article on Morningstar.com, with a full list of the ratings and key insights from this year’s assessment. Highlights include:
- Notable upgrades include Georgia’s Path2College 529 Plan which analysts upgraded to Silver rating from Neutral. The plan underwent a major revamp over the last 18 months, moving their age-based options to a progressive glide path, smoothing the transition of allocations from stocks to bonds. Georgia also drove cost reductions during contract negotiations, resulting in an average cost of approximately 0.09% for the enrollment portfolios, the lowest of any 529 plan under Morningstar analyst coverage.
- Downgrades include Virginia Invest529, a Gold-rated plan just two years ago. This year, analysts downgraded the plan to Bronze from Silver after the departure of Virginia’s in-house investment director, Michael Nguyen, in September 2021.
- The shift to progressive glide paths continues to pick up steam. Utah’s Gold-rated plan, my529, migrated to a progressive glide path this year. A progressive glide path makes frequent shifts between stocks and bonds relative to a stepped construction, which makes more abrupt shifts, often every few years on the beneficiary’s date of birth.
- In 2022, California’s ScholarShare College Savings Plan will launch the first suite of ESG target enrollment portfolios. At $12.7 billion, this step will also make ScholarShare the largest 529 plan to offer an ESG-aware portfolio to participants.
- This year’s ratings featured a total of 11 upgrades or downgrades compared to 27 in 2020 due to an enhanced rating methodology for 529 plans. Now that the methodology is fully implemented, the ratings have stabilized and Morningstar analysts expect there to be fewer ratings changes each year compared with 2020, and 2021 is in line with expectations.
In 2021, Morningstar analysts upgraded four plans and downgraded seven plans. Morningstar also initiated coverage on one plan. The table below shows upgrades, downgrades, and plans new to coverage:
Upgrades | Distribution | State | Current | Previous |
CollegeChoice | Advisor | IN | Neutral | Negative |
NJBEST 529 | Direct | NJ | Neutral | Negative |
Path2College | Direct | GA | Silver | Neutral |
Scholars Choice | Advisor | CO | Neutral | Negative |
Downgrades | Distribution | State | Current | Previous |
Bright | Advisor | IL | Neutral | Bronze |
College Savings | Direct | IA | Neutral | Bronze |
Invest529 | Direct | VA | Bronze | Silver |
New York’s 529 | Advisor | NY | Neutral | Bronze |
Scholar’s Edge | Advisor | NM | Negative | Neutral |
SSgA Upromise | Direct | NV | Negative | Neutral |
The Education | Direct | NM | Neutral | Bronze |
Coverage Changes | Distribution | State | Current | Previous |
CHET Advisor | Advisor | CT | Neutral | New to |
The Morningstar Analyst Rating™ for 529 Plans (Analyst Rating) gives investors saving for education a tool to help comprehensively assess 529 plan options. To determine a plan’s rating, Morningstar analysts assess four factors: the design of the plan’s investment options; the plan’s underlying money managers and the investment manager(s) that compiles these investments into portfolios; the stewardship practices of the plan’s state trustee and its other partners; and the value of the plan’s investment options compared with those of its peers. Analysts assign Gold, Silver, or Bronze ratings to plans they have concluded will likely offer investment options that outperform and a strong investment experience for qualified education expenses.
Additional Resources
In May 2021, Morningstar published its latest 529 Landscape Report which examines key industry developments and improvements. The report also covers 529 industry trends including industry growth and recent expansions of tax benefits.
Visit “Special Report: 529 College Savings Plans” on Morningstar.com to learn more about the tax and financial aid benefits that these plans offer, how they work, best practices for choosing one, and whether they’ve delivered for investors.
The research and ratings are also available in Morningstar® Advisor WorkstationSM, Morningstar OfficeSM, and Morningstar DirectSM, the company’s core investment research and analysis platforms. Morningstar® ByAllAccountsSM aggregates 529 plan data and delivers it to portfolio accounting platforms. Morningstar also offers a series of 529 college-savings plan indexes. More information is available here.
About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The Company offers an extensive line of products and services for individual investors, financial advisors, asset managers and owners, retirement plan providers and sponsors, and institutional investors in the debt and private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, debt securities, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with approximately $251 billion in assets under advisement and management as of June 30, 2021. The Company has operations in 29 countries. For more information, visit www.morningstar.com/company. Follow Morningstar on Twitter @MorningstarInc.
