Legg Mason Exits South Dakota's 529 Plan
September 18, 2006
Yet another consolidation has occurred in the competitive college savings plan market. South Dakota, the state best known for Mount Rushmore, is the latest to see its two plans merge into a single plan.
Legg Mason of Baltimore has dropped out of the 529 college savings plan market in South Dakota. Effective Sept. 2, Legg Mason's in-state plan, the Core4College 529 Plan, closed, while the plan's total holdings of about $125 million were transferred to the state's other college savings plan, the CollegeAccess 529 Plan, which has $565 million under management and is administered by Allianz Global Investors of Stamford, Conn.
This is the third of three college savings plans run by Legg Mason, but the only Legg 529 plan that by design was single-state only. Legg Mason also administers the national Scholars Choice Program in the state of Colorado, and the national BrightStart Program in Illinois. Citigroup had been the previous administrator of the BrightStart program, but Legg Mason replaced Citigroup after Legg's swap of its broker/dealer operations for Citigroup's asset management unit.
Legg's Scholars Choice Program stands to inherit as much as $17 million in assets later this month from the state of Wyoming's plan, run by Mercury Advisors. On July 10, Wyoming state officials announced the closing of their College Achievement Plan, effective Sept. 18 and recommended investors consider rolling their assets into the neighboring Colorado plan (see MME 7/24/06).
"Legg Mason is interested in dedicating its resources to enhance its [Scholars Choice and BrightStart] 529 plans with deeper distribution," said Legg spokeswoman Heather Guthmann.
"It wouldn't surprise me that Legg simply needed to choose which plan it wanted to align itself with, that is, if this was a decision made by Legg and not South Dakota," said Burt Baker, founder and director of research at Investforcollege.com of Williamsburg, Va.
In 2003, the State of South Dakota Investment Council (now the South Dakota Higher Education Savings Trust) and Legg Mason originally hatched a plan that allowed Legg to administer its Core4College plan. While this relationship has now ended, Legg hasn't disappeared from the South Dakota landscape altogether.
Under the Allianz 529 plan, Legg will offer two of its well-known funds, the Legg Mason Value Trust managed by legendary portfolio manager Bill Miller, and the Legg Mason Special Investment Trust managed by Sam Peters, confirmed Jeremy Leber, director of 529 plans at Allianz.
With this change, Allianz becomes the sole administrator of the state of South Dakota's multiple-manager 529 plan, and it is the only nationwide 529 plan Allianz overseees.
Under Allianz's care, the plan has thrived despite South Dakota's lack of an income tax. Many state 529 plans dangle a state tax exemption for contributions as a carrot to lure in-state investors. Moreover, South Dakota is ranked the 46th state in terms of largest populations, with only 775,933 residents, according to U.S. census data.
In 2002, Allianz (then PIMCO) struck a deal as part of its arrangement to run South Dakota's 529 plan under which Allianz agreed to fund a minimum of 70 scholarships per year for the first three years for high academically achieving South Dakota students attending South Dakota accredited institutions of higher education. These scholarships were for $2,000 per year for four years. The program, called the Allianz South Dakota Scholarship Program, was structured as a multi-year plan.
But changes to the Allianz-funded scholarship program began with the new fall 2006 school year. Awards beginning in 2006 are for a one-time only $2,000 scholarship instead of the multiple year $2,000 scholarship previously offered. Newly granted awards may be renewable, conditioned upon students achieving certain academic standings, if funding permits. Beginning this year, the amounts of scholarships funded by Allianz are contingent upon a formula tied to the amount of assets in the plan.
Legg Mason isn't the only firm rethinking its 529 plan participation. Last month, Pacific Life and Securities Management & Research of Newport Beach, Calif., advisor to the Pacific Life Funds, announced it would no longer open new accounts in its funds within the 529 plan offered in Arizona. Neither officials at Pacific Life, nor the manager of the Arizona college savings program returned calls seeking comment.
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