Morningstar Advisor - June/July 2011 - (Page 18)

10 Questions The College-Savings Challenge Douglas Chittenden President, TIAA-CREF Tuition Financing Inc. Interviewed on April 29 1 Which is in worse shape—Americans’ retirement savings or college savings? Based on studies, both are largely underfunded. I would point out they are inextricably linked. Today’s college graduates often are starting their working careers thousands of dollars in debt and have less money to fund their own retirement savings. In addition, many parents find themselves trying to save for their retirement while saving for their child’s education. 2 The average 529 account balance would cover about one year of tuition at an in-state public university. Why are balances so small? First, the industry is young, so families have not had that much time to save through 529 plans yet. Second, the birth of the 529 plan coincides with one of the most turbulent decades the market has ever experienced. However, there is reason to be optimistic. Industry data shows that 529 plans are among the fastest-growing investments in the country. 3 What can firms like TIAA-CREF do to encourage more college saving? There isn’t a silver-bullet solution, but certainly technology can play a big role in making it easier for families to save. Risk-managed age-based investment options and keeping costs and investment minimums low can also play a key role in encouraging savings. 4 What is the biggest challenge facing 529 plans? 529 plans need to continue to evolve to meet the needs of account owners. To encourage use of these plans, we are investing in web technology to make investing in and managing college savings easier, and we will continue to make improvements to asset allocation and investment strategies. 5 What did the 529 industry learn from the 2008 market crash? That investors are less willing to take risks with their college savings, particularly when their children are older and closer to college. The need for principal protection became apparent. 6 What are the most compelling reasons to use 529 plans over other college-savings vehicles? They enjoy very attractive federal tax benefits, and many states provide additional tax incentives. They are extremely flexible and include the ability to move assets among family members. Finally, the plans are increasingly easy to use and the costs of maintaining an account can be very low. 7 What trend in 529 plans would you most like to see? That saving for a child’s education becomes a family affair as grandparents and others contribute to the savings plans. 8 What trend would you most like to see end? While less and less so, there are still investors out there who are not taking advantage of in-state tax benefits. 9 Would college savers be better served by national 529 plans? I believe the current state-managed approach is the right one. The state issuers have an invaluable role in driving down fees, expanding access to college savers, and in promoting the benefits of a debt-free college education. 10 We notice that 529 plans managed by TIAA-CREF contain fewer investment choices than other plans. Why? More choices do not always lead to better outcomes. We work with each of our states to design a menu of options that we believe will best meet the needs of families in that state. 18 Morningstar Advisor June/July 2011

Table of Contents for the Digital Edition of Morningstar Advisor - June/July 2011

Morningstar Advisor - June/July 2011
Letter From the Editor
Questions for the Secret Society
Are 529 Plans a Useful Tool for Clients’ College-Savings Goals?
Taking the Lead
How to Sell Covered Calls
The College-Savings Challenge
Time to Play Defense?
Four Picks for the Present
Investment Briefs
Careful What You Wish For
Caution in Utilities After Japan Crisis
Blossoms and Thorns in the 529 Garden
Lower Fees, Competitive Returns Help More 529s Make the Grade
Morningstar Grades 529 Plans
529 Risks Include the Political
Researching 529 Plans Made Easy
How Closed-End Funds Are Born
Boutique Within a Bank
The Inefficient Pricing of Moats
More Steak Than Sizzle
Mutual Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
The Dangers of Demonizing

Morningstar Advisor - June/July 2011