SEC Establishes Education Savings Task Force, March 2004

Washington, DC, March 25, 2004 - SEC Chairman William Donaldson recently announced the creation of a new task force, the Chairman's Task Force on College Savings Plans, designed to closely examine issues raised by the structure and sale of college savings plans.

Background
Chairman Donaldson made the announcement in a response to a Congressional request for detailed information on state-sponsored 529 college savings plans by Rep. Michael Oxley (R-OH), Chairman of the House Commission on Financial Services. The task force is comprised of SEC staff from the Divisions of Investment Management and Market Regulation and the Offices of Economic Analysis, Investor Education, and General Counsel.

Chairman Donaldson's response to Rep. Oxley explains that, section 529 college savings plans, which have existed since 1997, are not regulated under the federal securities laws and that the SEC has limited information on them. It also notes that tuition savings plans are generally established as state trusts, which are considered instrumentalities of the state under the federal securities laws. Section 529 of the Internal Revenue Code establishes the eligibility requirements, maximum contribution limits, investment control, permissible uses of contribution, and tax treatment of earnings on contributions to the accounts.

In addition to questions about the regulation of Section 529 college savings plans, the SEC's response answers several questions raised by Rep. Oxley, including:

How does information provided to 529 plan investors differ from that provided to mutual fund investors?
On what basis do states select managers to manage their plans?
What fees are incurred by an investor investing in a 529 plan?
For a typical 529 plan, how are fees and costs to investors allocated among the state sponsor, the company managing the plan, brokers selling the plan and others?

ICI Position
Institute research reveals that saving for education is one of the primary financial goals of mutual fund shareholders. The Institute has expressed strong support for measures to conform individual states' tax treatment of 529 plan withdrawals to federal tax treatment, legislation that would make permanent the tax-free treatment of qualified withdrawals from Section 529 college savings plans, and proposals that would permit the offer and sale of 529 plan securities through employer payroll deduction programs.

Related Links
Additional information about the benefits of saving for education, including an online brochure that helps individuals better understand how state-sponsored 529 plans are helping millions of Americans save for higher education, is available on this website.