(Bloomberg News) California has picked TIAA-CREF to manage its college-savings plan that has about $4 billion in assets.
The ScholarShare Investment Board, which oversees the state's 529 program, voted today to award New York-based TIAA- CREF a five-year contract for its plan sold directly to investors, Joe DeAnda, a spokesman for California Treasurer Bill Lockyer, said in a telephone interview.
Fees on average will be lower than those charged by the current manager, Boston-based Fidelity Investments, which didn't bid for the contract. TIAA-CREF will have eight people in California dedicated to promoting the accounts, including two bilingual speakers, and will spend $10 million a year on marketing, or double that of Fidelity, DeAnda said.
"They bring with them tremendous knowledge and experience in helping families save and plan for college," Lockyer, who also is chair of the ScholarShare board, said of TIAA-CREF in a statement today.
Tax-Free Gains
The 529 plans, named after a section of the U.S. tax code, are set up by states. Investment earnings generally are free of state and federal taxes when used to pay for eligible education expenses. California's program has about $4.4 billion in assets in more than 291,000 accounts, the statement said. Assets in 529s nationwide totaled $149 billion as of April, according to the Chicago-based research firm Morningstar Inc.
TIAA-CREF is a financial-services firm serving educational and other nonprofit employees. It's the largest U.S. manager of retirement plans for teachers and academic researchers and also currently administers college savings plans in nine states, said spokesman Chad Peterson. The California contract provides for five, one-year extensions after the initial term, said Tom Dresslar, a spokesman for the treasurer's office.
College savings plans are "critical" because of the cost of education today, Dresslar said. Tuition and fees for in-state students at public four-year institutions averaged $7,605 for the 2010-2011 school year, according to the College Board, a New York-based nonprofit. At private nonprofit four-year colleges and universities, it's $27,293.
Bid Process
California took bids through May 2 for management of its two 529s, one sold directly to investors and the other offered through financial advisers. The state didn't receive any bids for its adviser-sold plan and the board directed staff to begin working with TIAA-CREF about assuming its management, according to the statement from the treasurer's office. The state's contracts with Fidelity are scheduled to expire in November, DeAnda said.