Chicago-based Morningstar will be revamping its 529 plan rating system to provide investors and financial professionals with greater transparency when the next reviews are released in October, according to a July 20, 2020 online post by Morningstar Manager Research Analyst Madeline Hume.

While ratings will still be based on analysts’ qualitative assessment, with the award of a gold, silver, bronze, neutral or negative rating, they will be simpler, Hume said. To further enhance transparency, the ratings will use fewer pillars of people, process, parent and price, which will now disclose pillar weightings and score calculations, by transitioning to a five-tier pillar rating scale. Additionally, analysts will have the discretion to override a rating if deemed appropriate. 

To further simplify the ratings it awards 529 plans, Morningstar will refocus the Parent Pillar to reflect only state stewardship, moving investment manager stewardship to the People rating, while the Price Pillar will convey Morningstar’s assessment of a plan’s fees, irrespective of its distribution channel or the strategy of the holdings underlying its investment options.

Lastly, state tax benefits will no longer impact Morningstar analyst ratings, which will now identify plans that feature investments the company expects to collectively outperform peers and adhere to industry best practices.

“Morningstar's 529 plan analysis has always focused on helping individuals saving for education expenses make better investment decisions,” Hume said in her post. “We feel these improvements to our methodology will enhance the way we identify 529 plans that adhere to best practices and feature investment options that we expect to collectively outperform relevant Morningstar Category peer groups on a risk-adjusted basis over the long-term.”