January 31, 2006

Hon. Dennis E. Leh, Chairman
House Finance Committee
209 Ryan Office Building
Harrisburg, PA 17120-2020

Hon. David K. Levdansky, Chairman
301 Irvis Office Building
Harrisburg, PA 17120-2020

Re: HB 529

Dear Chairmen Leh and Levdansky:

The Investment Company Institute¹ urges your support for HB 529 and Pennsylvania families saving for college. HB 529 will help Pennsylvania families attain their saving goals by encouraging them to invest in qualified state tuition programs established under section 529 of the Internal Revenue Code ("529 Plans"). Specifically, the bill would amend the Tax Reform Code to provide Pennsylvania residents with an exclusion from gross income for amounts withdrawn from any state 529 Plan for qualified higher education expenses.

Spiraling education cost is a significant issue for Pennsylvania families. The Institute supports efforts like HB 529 that encourage college savings. Among other things, HB 529 would conform Pennsylvania tax treatment of qualifying withdrawals from 529 Plans to federal law. The federal exclusion for qualifying withdrawals from 529 plans has had a major impact on the growth of these savings vehicles and has encouraged American families to save for their children's college education. In the past three years, assets in 529 Plans have almost tripled, increasing from $26.8 billion at year-end 2002 to $77.3 billion by the third quarter of 2005. During the same period, the number of 529 Plan accounts rose from 4.4 million to 7.9 million; the average account balance rose to over $10,000.2 Although these statistics are encouraging, many Americans who want to save for college still do not save enough.3

Recognizing the impact of federal law on the success of 529 plans, most states have conformed their state tax treatment of qualified withdrawals to federal law. Pennsylvania currently is one of only three states in the nation that does not conform its treatment of 529 plan withdrawals to federal law. Federal conformity will make it easier for Pennsylvania families to save for college. In addition, federal conformity will simplify tax compliance for Pennsylvania residents. We strongly urge you to support enactment of HB 529. Please contact me at 202/326-5835 or lrobinson@ici.org if you need additional information.

Sincerely,

Lisa Robinson

1 ICI members include 8,537 open-end investment companies (mutual funds), 669 closed-end investment companies, 157 exchange-traded funds, and five sponsors of unit investment trusts. Mutual fund members of the ICI have total assets of approximately $8.672 trillion (representing 98 percent of all assets of U.S. mutual funds); these funds serve approximately 89.5 million shareholders in more than 52.6 million households.

2 Sources: Investment Company Institute and College Savings Plan Network.

3 See Profiles of American Households Saving For College, Investment Company Institute Research Series, Fall 2003.