On May 29, 2019, Strategic Insight hosted a webinar for 529 Day to build awareness, understanding, and prioritization of 529s and ABLE, and discuss trends affecting the marketplace. Increasing awareness of college savings plans remains an important goal, even as they have existed since 1996 when the Small Business Job Protection Act added Section 529 to the Internal Revenue Code. The Strategic Insight 529 Industry Analysis, 2019 study demonstrates a key trend weighing on parents and future students, which is that not enough parents are saving for college in the proper vehicle. 41% of parents are not saving for college at all, and 32% aren’t saving using 529s. This leaves only 27% who are saving efficiently in 529s.
The second product trend is the movement from 529 prepaid plans to 529 savings plans, which parallels the broader financial service industry trend from defined benefit to defined contribution products and services. Like with defined benefit plans, there is an appeal to lower-risk, more guaranteed options, but heightened eligibility requirements and a lower number of new offerings have made prepaid plans significantly less available. 529 savings plans increased assets by 6.2% and accounts increased by 4.7% from 1Q 2018 to 1Q 2019, while 529 prepaid plans decreased assets by 2.5% and accounts decreased by 6.4%. Therefore while 529 plans overall (including both 529 savings and prepaid plans) have been increasing assets by 5.5% and accounts by 3.8%, there is divergence in momentum by product type with 529 savings plans gaining momentum and 529 prepaid plans reporting decreasing levels of momentum.
529 savings plans have served as the primary driver of college savings plan growth in recent years.
The third product trend has been the transition from age-based glide paths to enrollment date glide paths. While age-based glide paths provide asset allocation based on the age of the beneficiary, enrollment date glide paths provide asset allocation based on a certain date in the future such as an expected date of enrollment or usage of the assets. This pivot by the industry aligns with the recent expansion in qualified distributions at the Federal level and at some states from higher education to K through 12 tuition as well. (Click here for a list of states that allow qualified expenses from K through 12 tuition). The movement to enrollment date glide paths can additionally help expand 529 usage to other demographics that may experience a college education at a later age. In other words, product providers are improving plan flexibility and adjusting their glide paths to align with the broadening usage of 529 plans. The list below includes 529 program managers that have implemented this product development as of publication of this article:
Based on industry trends and outlook including recent legislation such as the SECURE Act that would further expand the list of qualified expenses for 529 plans, this third product development can be expected to apply to even more 529 product providers and 529 plans.
Therefore, product providers and distributors should note the continued work to build awareness of 529 plans, the shift from defined benefit to defined contribution products, and the shift from age-based target date line-ups to enrollment date line-ups. These trends suggest that the product continues to evolve to align and grow with the demand of parents seeking a solution to their college financial planning needs.Back to Research Blog