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Conflicting incentives in the management of 529 plans

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  • Balthrop, Justin
  • Cici, Gjergji

Abstract

Section 529 plans have experienced tremendous growth, yet we know little about how the incentives of their sponsors (i.e., states) and program managers affect investors. We study how the incentives of these key players relate to plan characteristics. Plans where states exhibit a greater tendency to extract revenue offer investment menus with higher underlying fees, weaker performance, and limited options. In addition, their sponsors offer no other direct or indirect benefits that offset these plans' inferior investment menus. Our evidence suggests conflicts of interest faced by program managers and lack of investment sophistication of sponsoring states as likely explanations.

Suggested Citation

  • Balthrop, Justin & Cici, Gjergji, 2022. "Conflicting incentives in the management of 529 plans," CFR Working Papers 22-06, University of Cologne, Centre for Financial Research (CFR).
    • Handle: RePEc:zbw:cfrwps:2206
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    References listed on IDEAS

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    1. Veronika K. Pool & Clemens Sialm & Irina Stefanescu, 2016. "It Pays to Set the Menu: Mutual Fund Investment Options in 401(k) Plans," Journal of Finance, American Finance Association, vol. 71(4), pages 1779-1812, August.
    2. Vicki L. Bogan, 2014. "Savings Incentives And Investment Management Fees: A Study Of The 529 College Savings Plan Market," Contemporary Economic Policy, Western Economic Association International, vol. 32(4), pages 826-842, October.
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