made several changes last week aimed at lowering risks for kids nearing college and reducing expenses all investors pay, which a recent survey found to be less-than-ideal.
The plan’s manager, TIAA-CREF,
by one fifth Feb. 22. It dropped from 0.25% of assets to 0.20%. That means investors with $10,000 in the plan will pay TIAA-CREF $20 a year instead of $25.
The plan’s board this month also voted to replace a bond index fund with one offered by TIAA-CREF. It also voted to replace in May an underperforming and out-of-favor international stock fund with a much less expensive one from Vanguard.
The fee reductions, in particular, are good news.
found Oregon’s lowest-cost investment option to be the 27th highest among the lowest-cost options in 54 direct-sold plans examined. Direct-sold plans are those that investors can buy into without the help of a broker or adviser.
The plan’s board this month also:
- Expanded age-based portfolios to nine categories instead of six. The change, in some cases, will more gradually reduce an account beneficiary’s exposure to risky stocks as the child approaches 18, Parker said, though at certain ages, it actually elevates the exposure. Overall, It’s Only Money thinks this is likely a good thing.
- Replaced the Drefus Bond Market Index fund used in more than a dozen of its portfolios with TIAA-CREF’s Bond Index Fund. This took effect Feb. 22. The fee on the TIAA-CREF fund is lower, but only marginally (0.15% vs. 0.13%). It’s Only Money has no opinion on the move, but it’s sure TIAA-CREF appreciates the added revenue now that it’s cut its management fees.
- Replace Artio Interinatonal Equity fund (JETIX) with Vanguard’s International Growth Fund (VWILX). This will happen in May, Parker said. Thirty-seven percent of the plan’s diversified international equity portfolio was invested in this Artio fund.
The Artio fund’s performance lagged in recent years, though it’s rebounded since January. But the plan’s independent investment adviser, R.V. Kuhns & Associates Inc., noted that investors pulled a net $4.6 billion, or 23 percent of the fund’s assets, out of it in 2011. “We believe that the recent outflows create a source of organizational instability that causes us concern,” RV Kuhns wrote in a Feb. 1 memo to the board recommending the fund be terminated.
Vanguard’s fund costs investors about two thirds less. Artio might well rebound, but plan investors probably should’ve been with a low-cost Vanguard fund to begin with. It’s Only Money likes this move.
Bottom line, since TIAA-CREF took over in 2010, plan fees have fallen. A $10,000 investment in the age-based portfolios used to cost, on average, $55 a year, or $678 over 10 years. Now it will cost $41 a year, or $506 over 10 years. That’s still too high, but it’s an improvement. The lowest-cost plans in 15 other states cost less than $350 over 10 years, according to savingforcollege.com’s survey.
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