529 Plans

awilliams

We recently ran an article in our Benefits and Compensation Law Alert about 529 plans. A 529 plan, also known as a qualified tuition program, is a tax-free savings program that provides funding for higher education. Recently, many employers have sponsored these plans for their employees as an additional benefit.

Readers of the Benefits newsletter are interested in hearing from employers who are making contributions to 529 plans on behalf of their employees? One of the readers (an HR manager) would like to speak with an HR representative of such an employer to see how well the program is working.

If any of you are sponsoring these plans, please respond with how well they are working. If you would like to volunteer to talk with the subscriber, please e-mail me and I can set that up. I might even hit up Christy to give you a free prize for volunteering!

Thanks!

Anne Williams
Attorney Editor
M. Lee Smith Publishers, LLC
[email]awilliams@mleesmith.com[/email]

Lori B

Hi Anne

We rolled out 529s this year. It has been a hit with those who understand them, but lost on the bulk who don't. It requires a lot of communication/education to get ees to grasp what a neat tool they are. We do not contribute. It is a purely voluntary ee contribution.

Since most of our ee are located in Illinois and Missouri, we promoted the Illinois Bright Start and Missouri MO$T plans. We will honor any 529 from any state so long as they accept direct deposit contributions.

I do not recommend that people go to a broker to set these up. Brokers can provide a lot of useful info to educate you. Unfortunately, they have a personal interest in getting paid (can't blame them) so they steer you into the state programs that offer them the best commissions. The Ohio Putnam plan is a favorite of brokers b/c of the high fees, which means higher comm'ns for them. Employers should do their homework here. For ex, Ohio Putnam plan charges something like 3% in fees. Illinois Bright Start is less than 1%. It adds up and reduces your ees' gains.

In addition, using a plan from another state gives the ee federal tax savings but no state savings. If a state resident uses their own state's plan they may be able to reap state tax savings as well. Each plan is a little different, so you need to compare and contrast the pros/cons. I found the [url]www.savingforcollege.com[/url] website to be useful. It gives apples to apples comparisons for each state plan.

So, how do you set them up? We contacted the providers directly. Bright Start is run by Salomon Smith Barney and MO$T is run by TIA-CREF. These organizations fell all over themselves to help us get started. They sent reps on site for meetings, provided literature, posters, payroll stuffers, intranet files, you name it. They did not charge us for any of the printing costs, etc.

I encourage employers to add this benefit. It doesn't take much to set up from an admin standpoint. The providers handle all the accounting, statements, etc. All you do is roll out the program, sign them up and start a direct deposit payroll deduction. There are no gov't reporting or testing requirements like retirement plans. Great concept!

awilliams

Lori,

Thank you so much for that informative post. I will be interested to hear if the plan continues to work out for your company. It appears to me to be a win-win situation for both the employer and the employee. It sounds like you sure did your research and that it worked out very well. Thanks for posting!


Anne Williams
Attorney Editor
M. Lee Smith Publishers, LLC