2019-2020 ANNUAL REPORT
Dear Fellow Pennsylvanians: On behalf of the Tuition Account Program Advisory Board, I am pleased to present the annual report of the Pennsylvania 529 College and Career Savings Program (PA 529) for fiscal year 2019-20. Since the program’s beginning it has helped more than 129,710 students pay for higher education expenses. The program has paid more than $4.1 billion to cover these expenses. 31,014 students used PA 529 accounts to pay $464.7 million for their higher education this year alone. PA 529 continues to excel by virtually any metric. The total accounts of both the Guaranteed Savings Plan (GSP) and the Investment Plan (IP) grew to 250,968 which is a 5.12% increase from last year. Total account owner contributions grew by 10.84% to $652 million —bringing the total assets of PA 529 under management to $5.52 billion, an increase of 6.15% from the previous year. The PA 529 IP was awarded the Morningstar Silver RatingTM, an upgrade from it’s first-ever Morningstar Bronze RatingTM last year. These ratings put the PA 529 IP in the “Top 529 College Savings Plans” and among the elite “Best in Class” plans. Nationwide, only 14 plans rate as Silver (11) or Gold (3). It should be noted that the PA 529 IP is one of only three 529 plans across the nation whose rating rose from neutral to silver in just two years. These ratings recognize the hard work of Treasury over the past few years to improve the IP through age-based investment options, portfolio diversification, fee reductions, and overall better oversight of the plan. This designation will help us continue to make improvements that will help Pennsylvania families save for higher education costs. The IP was also able to lower fees again for account owners. The reduction of 0.005% was a result of an increase in assets under management. Treasury anticipates further reductions as assets continue to grow and meet new thresholds. This new reduction continues a multi-year record of working to reduce fees for PA 529 savers. For the eighth consecutive year, the PA 529 GSP is more than fully funded, at 127.30%. Subsequent to the end of the Fiscal Year, the GSP’s actuarial status was 129.38% as of September 30, 2020. While the PA 529 program continues to grow, the addition of Keystone Scholars is making a significant impact across the Commonwealth, and helping families start saving as early as possible. The program, that offers $100 starter deposit into a PA 529 GSP account for every baby born or adopted by a Pennsylvania family, started statewide in 2019, following the passage of legislation in 2018 and currently has more than 200,000 participants. Keystone Scholars started in 2018 with a demonstration project in six counties. Researchers have helped us conclude that the availability of Keystone Scholars has a positive impact on families opening PA 529 accounts during the first year of their child’s life. Families in pilot counties were twice as likely to open a PA 529 account during their child’s first year than those in other counties—this was true across all demographics. This promising finding shows the power of Keystone Scholars and the impact it can have on every new Pennsylvanian. The program helps jumpstart savings for every child without using any taxpayer funds. Keystone Scholars is funded by existing earnings dollars by the GSP and philanthropic donations. We are excited by these accomplishments, but even more so by the bright future for the PA 529 College and Career Savings Program. Helping families save for postsecondary education is important not only for their individual goals, but for the well-being of the commonwealth’s economy, workforce, and next generation.
Sincerely,
Joe Torsella Pennsylvania State Treasurer
TABLE OF CONTENTS
INTRODUCTION 1. Brief Program Overview. 2. Program Administration. 3. Advisory Board Members. PROGRAM ACCOMPLISHMENTS
7. PA 529 IP Awarded Morningstar Silver RatingTM 7. Keystone Scholars Program Continues to Help Families Most in Need. 8. PA 529 GSP Enrollment Fee Eliminated. 9. Record Number of Families Saving at Record Levels 13. $465 Million to Help Make Higher Education Possible For 31,000 Students. PROGRAM CHANGES 17. Minimum Contributions Reduced. 17. Qualified Education Expenses Expanded to Include Apprenticeships and Loans. 17. COVID Response. PA 529 GUARANTEED SAVINGS PLAN 21. How the PA 529 Guaranteed Savings Plan Works. 23. PA 529 GSP Fund Exceeded a 100 Percent Funded Actuarial Status. 23. PA 529 GSP Contributions and Assets Continue to Grow. 24. The PA 529 GSP Remains a Successful, Lower-risk College and Career Savings Plan. PA 529 INVESTMENT PLAN 29. PA 529 IP Contributions Surpassed all Previous Years. 31. PA 529 IP Investments saw Growth of Over Four Percent. SUBSEQUENT CHANGES 39. PA 529 IP Fees Reduced Again. 39. PA 529 IP Investment Option Changes. FINDINGS AND RECOMMENDATIONS 43. Findings and Recommendations. APPENDIX
INTRODUCTION
Joseph M. Torsella, Pennsylvania State Treasurer
Brief Program Overview.
The Pennsylvania 529 College and Career Savings Program provides one of the best ways to save for higher education. It is an easy and tax-efficient way to make higher education affordable. To meet the needs of nearly anyone who wishes to invest for higher education, Pennsylvania offers two distinct plans – the Pennsylvania 529 Guaranteed Savings Plan (PA 529 GSP) and the Pennsylvania 529 Investment Plan (PA 529 IP).
The PA 529 GSP is a lower-risk way to save for not only two- and four-year colleges and universities but also many trade and vocational schools. When used for higher education, growth is based on college tuition inflation. For example, if a family has saved enough for one or 120 credits at a Pennsylvania State System of Higher Education university, they will have enough for that many credits at that university in the future – no matter how much tuition has increased. It can be used at any college, university, or trade school that is eligible to participate in federal student aid programs, elementary and secondary school tuition expenses up to $10,000 per year, and to pay for certain eligible apprenticeship costs. And, even if the account is not used for education, the minimum amount refunded is the remaining principal, minus any fees. The Pennsylvania Treasury oversees the investments.
Administered through the PA 529 GSP by the Pennsylvania Treasury Department, Keystone Scholars is Pennsylvania’s statewide Child Development Account (CDA) program. It provides a $100 starter deposit for higher education to every Pennsylvania child at birth.1 Research shows that a child with even a modest amount of higher education savings is three times more likely to continue on to a 2- or 4-year college and four times more likely to graduate.2 Keystone Scholars sets the expectation at birth for every child in Pennsylvania to pursue some form of postsecondary education and it encourages families to start saving on their own early. The starter deposit and its earnings can be used on qualified expenses at any type of postsecondary institution, both in and outside the state.
The program’s second plan, the PA 529 IP, offered 17 different investment options during the period covered by this Annual Report, including three age-based options, provided by The Vanguard Group. These options include varying asset allocations, ranging from 100 percent equities to inflation-protected securities.
Both plans provide the same great advantages:
• Tax deferral and exemption. Earnings grow tax free and, when used for qualified higher education expenses, are tax exempt.
• Pennsylvania income tax deduction. Contributions to both plans are deductible from taxable state income up to $15,000 per beneficiary each year. For a married couple with two incomes of $15,000 or more each, the deduction could total $30,000 per child.
• Federal gift and estate tax advantages. Contributions up to $75,000 can be made in a single year ($150,000 for a married couple filing jointly) for each beneficiary and prorated over five years for federal gift and estate tax purposes. And, while contributions are considered completed gifts and are no longer part of the contributor’s estate, the contributor (if the account owner) retains complete control – including the ability to take back contributions at any time for use toward any other purpose (subject to applicable taxes and penalties).
• Pennsylvania inheritance tax exemption. Assets in a PA 529 account are not subject to Pennsylvania inheritance tax, which, depending on the heirs, could be a savings of up to 15 percent of the assets.
• No income restrictions. Unlike most other tax advantages for saving (like the American Opportunity Credits, formerly the Hope Credit or the Lifetime Learning Credit, and Roth IRAs), there are no income restrictions to limit who can benefit from a 529 plan’s tax advantages.
• Federal bankruptcy protection. Assets in a PA 529 account are protected in federal bankruptcy proceedings, depending on when contributions were made and the value of the account.
1 Includes babies born after December 31, 2018 who are adopted by PA residents. 2 Elliott, W., Song, H-a, & Nam, I. (2013). Small-dollar children’s saving accounts and children’s college outcomes by income level. Children and Youth Services Review, 35 (2013), p. 560-571. https://csd.wustl.edu/publications/documents/wp13-06.pdf. 1 The Pennsylvania 529 College and Career Savings Program
• Protection from creditors. Assets in a PA 529 account are protected in state court proceedings from creditors of the account owner and/or the beneficiary.
• State financial aid advantage. Assets in a PA 529 account are not counted in determining state financial aid eligibility. PA 529 savings will not disqualify otherwise eligible students from getting Pennsylvania grants – or reduce the grant awarded. In academic year 2019-20, the average PA 529 account beneficiary received about $156 more in state grants because of this advantage. Over four years of undergraduate school, that would be nearly $624.
• Tuition discounts at over 400 private colleges nationwide with 56 in Pennsylvania. Through the program’s arrangements with SAGE Scholars, tuition discounts, like “frequent flyer miles” for college tuition, are earned based on the value of the PA 529 College and Career Savings Program account. Discounts can be earned of up to one year of tuition (currently valued at $10,500 to $57,324 – depending on the school). To date, PA 529 account beneficiaries enrolled in SAGE have earned over $1 billion in potential tuition discounts.
• Cash back rewards. Account owners can link their PA 529 accounts to a Upromise Rewards program account, which allows families to earn cash back on qualified purchases from some of America’s leading companies, including grocery stores, drug stores, gas stations, restaurants, retail stores, and online shopping sites. The cash back earned can be invested automatically in their PA 529 accounts on a quarterly basis. Through June 30, 2020, PA 529 account owners earned $21.58 million through Upromise Rewards.
Program Administration.
Act 11 of 1992 charged the Pennsylvania Treasury with establishing and administering the PA 529 College and Career Savings Program and required the department to create the Tuition Account Programs Bureau, now called the Bureau of Savings Programs. Treasury’s investment advisors and asset managers oversee assets in the PA 529 GSP. Contributions to a PA 529 IP account are invested in Vanguard mutual funds with oversight by Treasury. Ascensus College Savings Recordkeeping Services, LLC performs the record-keeping and processing functions for both the PA 529 GSP and PA 529 IP, with close supervision by the Bureau of Savings Programs. The Bureau is also responsible for customer service and marketing for both plans.
2 Joseph M. Torsella, Pennsylvania State Treasurer
Advisory Board Members [as of June 30, 2020]
Dr. Brenda A. Allen President Barbara Mattleman Education Advocate/Consultant Lincoln University
Dr. Richard E. McDowell Jeffrey S. Batoff, Esquire President Emeritus Obermayer Rebmann Maxwell & Hippel LLP University of Pittsburgh at Bradford
Karen D. Beyer Noe Ortega Senior Sales Executive Deputy Secretary Razor Technology Pennsylvania Department of Education
Laurie A. Carter, J.D. President The Honorable Michael Peifer Pennsylvania House of Representatives Shippensburg University of Pennsylvania
Dr. Jonathan Peri The Honorable Andrew E. Dinniman President, Manor College Senate of Pennsylvania Chairman, Council of Higher Education
Mark D. DiRocco, Ph.D. The Honorable Jason E. Salus Executive Director Treasurer Pennsylvania Association of School Administrators Montgomery County
John R. Evans Director, Office of Small Business Advocate John J. Sygielski, Ed.D. President Pennsylvania Department of Harrisburg Area Community College Community and Economic Development
Dr. Daniel Greenstein The Honorable Joseph M. Torsella Chancellor State Treasurer Pennsylvania State System of Higher Education Chairman. Tuition Account Program Advisory Board
James L. Haddock Small Business Owner
3
PROGRAM ACCOMPLISHMENTS
Joseph M. Torsella, Pennsylvania State Treasurer
PA 529 IP Awarded Morningstar Silver RatingTM
For the second time in two years, the PA 529 IP has received an upgraded rating from Morningstar in its review of the “Top 529 College Savings Plans” for 2020, the highest rating the plan has ever received. This Morningstar Silver RatingTM puts the PA 529 IP among an elite group of 35 “Best in Class” plans, only 14 of which received a gold or silver rating, less than 23% of all plans rated. The PA 529 IP is one of only three 529 plans to improve from a neutral to a silver rating in just two years.
Morningstar, a highly respected and reliable source of independent investment analysis, rates 529 plans in four key pillars: Process, People, Parent, and Price. According to Morningstar, the PA 529 IP received a Morningstar Silver RatingTM based on Treasury’s thoughtful oversight of the program, compelling pricing, well-resourced, thoughtfully designed investment lineup, and the Keystone Scholars Program, the nation’s first universal, opt-out Child Development Account.
Keystone Scholars Program Continues To Help Families Most In Need.
Keystone Scholars is Pennsylvania’s statewide Child Development Account (CDA) program, administered by Pennsylvania Treasury. It provides a $100 starter deposit for higher education to every Pennsylvania child at birth.3 Research shows that a child with even a modest amount of higher education savings is three times more likely to continue on to a 2- or 4-year college and four times more likely to graduate.4 Keystone Scholars sets the expectation at birth for every child in Pennsylvania to pursue some form of postsecondary education and it encourages families to start saving on their own early. The starter deposit and its earnings can be used on qualified expenses at any type of postsecondary institution, both in and outside the state.
Pennsylvania Treasury administers Keystone Scholars using surplus earnings from the GSP as well as philanthropic donations and as a result, it uses no taxpayer funds.
Keystone Scholars was piloted as an opt-in program in six counties in 2018. By the end of 2019, after the one-year claim window had closed for the last eligible pilot babies of 2018, the total claim (opt-in) rate was more than 19 percent, which exceeded expectations based on the claim rate of other states in similar project stages.
Beginning January 1, 2019, every child born to or adopted by Pennsylvania residents now receives the $100 starter deposit for higher education. As a result, Pennsylvania became the first state in the country to legislate a universal, opt-out child savings account at birth. It is also the country’s largest CDA currently in operation. The swift passage of the Keystone Scholars legislation championed by Senator John Gordner, Senator Vincent Hughes, and former Representative Bernard O’Neill, as well as its considerable bipartisan support, is a testament to the effectiveness of the early research and outreach that went into launching the pilot. The Keystone Scholars statute provides for implementation of all ten key CDA design elements5 recommended by experts and it has been held up as a model which other states have since emulated.6
Since the statewide program's launch on January 1, 2019, we have received birth files for over 198,000 babies, and only 30 opt-outs. Nearly 21,000 (10.45%) families have logged onto the Keystone Scholars account site and of those, 19.55% have opened their own PA 529 accounts.7
3 Includes babies born after December 31, 2018 who are adopted by PA residents. 4 Elliott, W., Song, H-a, & Nam, I. (2013). Small-dollar children’s saving accounts and children’s college outcomes by income level. Children and Youth Services Review, 35 (2013), p. 560-571. https://csd.wustl.edu/publications/documents/wp13-06.pdf. 5 Sherraden, M., Clancy, M., & Beverly, S. (2018). Taking Child Development Accounts to Scale: Ten Key Policy Design Elements (CSD Policy Brief 18-08). St. Louis, MO: Washington University, Center for Social Development. 6 Clancy, M. M., Sherraden, M., & Beverly, S. G. (2019, November). Child Development Accounts at Scale: Sample State Legislation (CSD Policy Summary No. 19-46). St. Louis, MO: Washington University, Center for Social Development. https://doi.org/10.7936/cptg-2n77. 7 Data as of October 17, 2020. 7 The Pennsylvania 529 College and Career Savings Program
In last year’s Annual Report, we highlighted the results of an external evaluation of the Keystone Scholars pilot, which Dr. Robert Nathenson conducted during his time at the University of Pennsylvania’s Consortium for Policy Research in Education.8 The evaluation had many significant findings, most notable of which was that families in pilot counties were twice as likely to open up a PA 529 account within the first year of their newborn’s life than those in non-pilot counties. That doubling of the likelihood of 529 account openings was directly attributable to the pilot program, and held true across all races and ethnicities.
In June of this year, we concluded a baseline survey of Keystone Scholars families and a control group, which was designed and administered by Dr. Robert Nathenson. The survey had been open for about a year and garnered over 6,000 responses. Of those who started the survey, 92% completed it. While the survey response data is not necessarily generalizable to the overall Keystone Scholars population, it provides rich insight into our Keystone Scholars families, with variation across demographic subgroups including race, ethnicity, parental education, and income level. The survey provides baseline information on respondents’ savings behavior, financial literacy, and expectations for their children’s postsecondary education. We plan to administer a follow-up survey in a few years’ time to gauge changes in respondents’ views, especially related to future expectations for their children.
Now that we have a year of experience implementing the statewide program, we are excited to build on CDA best practices with a focus on low- and moderate-income (LMI) children. Because CDAs were designed to mitigate wealth inequality, expand opportunity, and foster a college-bound identity for all children, we are now focusing efforts on testing the implementation of an automatic progressive subsidy, which is considered by experts to be a best practice.9 In particular, with the generous agreement of our philanthropic donors and with proceeds from a legal settlement to which Treasury was a party, we are planning to pilot a progressive subsidy for babies of mothers enrolled in WIC. We plan to partner with some of the organizations in Pennsylvania that administer the WIC program for focused outreach.
Outreach for the PA Savings Pledge, an initiative that combines a prize-linked savings program with the Keystone Scholars incentive for a campaign that can be adopted by local communities for targeted outreach, was curtailed by COVID-19 almost as soon as it began, but we quickly pivoted and switched to reaching out to new families more virtually. We soon began to take steps to raise awareness of the Pledge to Keystone Scholars families and as a result saw a large increase in the number of families pledging to save and opening their own savings or PA 529 accounts. For example, Pledge taking increased by more than 11 percentage points in July, after we included information about it in the letter mailed to all new Keystone Scholars parents. In October 2020 we went a step further and embedded pledge sign-up within the Keystone Scholars registration process, so that it is now a more streamlined, opt-out program. We expect uptake to continue to increase as a result. We are also finding through prize-winner survey data that the Pledge is reaching and engaging our target LMI families, even virtually. For example, since its launch in February 2020, each month, at least 50% of participants whose ticket is randomly drawn and who complete the program survey have household income below $60,000.
In summary, we’ve had a busy couple of years at Pennsylvania Treasury rolling out the statewide Keystone Scholars program. Nearly 200,000 Pennsylvania children now have a college savings account established in their name. We are now focusing efforts on raising awareness of the program especially among low- and moderate-income families, and on encouraging all families to begin saving early.
PA 529 GSP Enrollment Fee Eliminated.
The PA 529 GSP enrollment fee was eliminated. The enrollment fee was previously $50 if enrollment was completed with a paper form and $25 if enrollment was completed online. The elimination of the enrollment fee was meant to help remove barriers for all Pennsylvania families, including low-income families, and allow them to begin saving for their child’s future.
8 Nathenson is now a Senior Researcher at the American Institutes for Research. 9 Sherraden, M., Clancy, M., & Beverly, S. (2018). Taking Child Development Accounts to Scale: Ten Key Policy Design Elements (CSD Policy Brief 18-08). St. Louis, MO: Washington University, Center for Social Development. 8 Joseph M. Torsella, Pennsylvania State Treasurer
Record Number of Families Saving at Record Levels.
One of the most important goals for the program is to increase awareness and usage of PA 529. Each Pennsylvania family with higher education in its future needs to know about this great state-offered program. Of course, increased awareness alone is not enough. Families need to be encouraged to open accounts and begin saving as early in their children’s lives as possible. And those with accounts need to be encouraged to save more. These continue to be the three goals of the PA 529 program’s marketing and outreach efforts.
As in years past, in fiscal year 2019-2020, the program engaged in a variety of marketing channels including direct mail, email, digital media advertisements, and webinars in addition to earned media. We continued to expand our presence in the digital arena, utilizing social media, paid search, and banner advertisements. Additionally, and combined with outreach related to Keystone Scholars, the program continues to reach new individuals through partnerships with legislators, hospitals and healthcare systems, employers, financial planners, accountants, tax advisors, community organizations, and schools.
Finally, since 2019, we have built an exciting partnership with the Pittsburgh-based education-savings nonprofit Fund My Future. Fund My Future has been successful in engaging low-income families in Allegheny County through targeted outreach to save for their children’s future education. This partnership has resulted in the statewide PA Savings Pledge, an initiative that combines Fund My Future’s prize-linked savings program with the Keystone Scholars incentive for a campaign that can be adopted by local communities for targeted outreach. Any adult can take the Pledge online to save for the future education of any child ages 0 to 18. Participants receive raffle tickets for monthly prizes ranging from $50 to $1,000. To claim their prize, winners must provide proof of a deposit made in the past month into a savings or PA 529 account in the child’s name, with no withdrawals.
Since our soft launch, over 1,500 families have taken the Pledge to save regularly for their child’s postsecondary education. Fund My Future covers the costs to administer its program and fund the prize pools, and Treasury provides in-kind support. The Pledge has proven engaging for low-income families, and it allows Pennsylvania Treasury the ability to offer savings incentives to families with older children.
9 The Pennsylvania 529 College and Career Savings Program
While Prepaid Plan Growth Across the Country has Slowed GSP Account Growth Continues to Surge.
For both plans combined, there were 22,715 new accounts in fiscal year 2019-2020, compared with 20,683 in the prior year, an increase of over nine percent. There was a year-over-year increase in both the PA 529 GSP (5.79 percent), and in the PA 529 IP (12.16 percent). In the PA 529 IP, 14,695 new accounts were opened compared to 13,102 in 2018-19, while in the PA 529 GSP, 8,020 new accounts were opened compared to 7,581 opened last fiscal year. It should be noted that while overall growth in similar prepaid plans in other states has slowed, the GSP continues to thrive. Nationwide, the average annual growth rate (2011-2018) of open prepaid accounts has actually decreased 1.2% while the rate of PA 529 GSP account growth for the same period has grown 1.46%. Likewise, while the average annual growth rate of direct-sold accounts has only increased 6.9%, the IP account growth rate was nearly 9%. PA 529 account growth can be attributed to a number of factors, including the IP’s low fees and the underlying funds’ positive performance as well as the unique nature of the GSP. The following graph shows the history of new accounts over the last five years. New Accounts by Fiscal Year and % Year-Over-Year Changes
24,000 22,000 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20
529 GSP N/A 12.2% -7.3% 1.2% 5.8% 529 IP N/A 21.2% 12.2% -5.6% 12.2% Total 529 N/A 17.5% 4.5% -3.2% 9.8%
10 Joseph M. Torsella, Pennsylvania State Treasurer
Total Enrollment Increased.
Total enrollment for the PA 529 program increased to 250,968 accounts – an increase of 5.12 percent over June 30, 2019. The PA 529 GSP increased only slightly – from 108,252 to 109,411 – an increase of just over one percent – while the PA 529 IP increased from 130,489 to 141,557 – an increase of 8.48 percent. The graph below provides the history of total net enrollment over the last five years. Total Net Enrollment as of June 30 and % Year-Over-Year Changes 260,000 250,000 240,000 230,000 220,000 210,000 200,000 190,000 180,000 170,000 160,000 150,000 140,000 130,000 120,000 110,000 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 2016 2017 2018 2019 2020
529 GSP N/A 0.7% 0.1% 0.5% 1.1% 529 IP N/A 9.3% 9.5% 8.0% 8.5% Total 529 N/A 4.9% 4.8% 4.5% 5.1%
11 The Pennsylvania 529 College and Career Savings Program
Pennsylvanians Continue to Make Record-breaking Contributions to their Accounts.
The total amount contributed into all PA 529 accounts was $652 million – an increase of 10.84 percent compared to last fiscal year ($588.2 million)and the highest amount contributed in one year since the program’s inception in 1993. The graph below shows the gross contributions made into all PA 529 accounts by fiscal . PA 529 Combined Gross Contributions by Fiscal Year and % Year-Over-Year Changes
$700,000,000
$600,000,000
$500,000,000
$400,000,000
$300,000,000
$200,000,000
$100,000,000
$0 FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20 % Changes N/A 12.01% 9.97% 3.54% 10.84%
Families Across the Commonwealth are Served.
The PA 529 serves families throughout the state. For each county, the following map shows the amount of contributions (not including growth) in current accounts and the percentage of the population under 18 years of age who have accounts.
While families in every county have accounts, the level of coverage (also referred to as penetration rate) varies considerably. Not surprisingly, generally counties with higher average household income have a higher percentage of children with accounts. That being said, PA 529 penetration has increased since last year: 8.55% in 2020 compared to 8.09% in 2019.
12 PA 529 GUARANTEED SAVINGS PLAN (GSP) & PA 529 INVESTMENT PLAN (IP)
OPEN ACCOUNTS AND NET CONTRIBUTIONS BY COUNTY AS OF 6/30/2020 “AVG” is median income for families with children under 18. TOTAL POPULATION UNDER 18 AS OF 2017: 2,663,231 TOTAL OPEN ACCOUNTS: 227,648* TOTAL NET CONTRIBUTIONS: $3,405,646,287* COLOR KEY LOW (UNDER 4.0%) BELOW AVERAGE (4.0% - 5.9%) AVERAGE (6.0% - 7.9%) ABOVE AVERAGE (8.0% - 9.9%) HIGH (10% AND ABOVE) STATEWIDE PENETRATION AVERAGE AS OF 6/30/2020: 8.55% *Does Not Include Accounts with Non-specified Counties or FACT KEY ERIE - COUNTY NAME POP 59,083 - TOTAL POPULATION UNDER 18 AS OF 2015 2,822 - TOTAL ACCOUNTS $56,677 - NET CONTRIBUTIONS 4.8% - PERCENTAGE OF TARGET POPULATION of Non-Residents
ERIE POP 59,083 | AVG $56,677 2,822 accts. | $31,218,509 MCKEAN SUSQUEHANNA 4.8% WARREN BRADFORD POP 8,225 | AVG $48,714 TIOGA POP 7,695 | AVG $59,063 POTTER POP 13,478 | AVG $63,142 POP 7,714 | AVG $56,381 276 accts. | $2,585,663 POP 8,092 | AVG $59,794 425 accts. | $4,598,740 WAYNE 618 accts. | $7,310,570 479 accts. | $4,382,659 3.4% POP 3,491 | AVG $51,071 404 accts. | $3,124,119 5.5% POP 8,616 4.6% CRAWFORD 6.2% 147 accts. | $2,255,603 5.0% AVG $63,367 POP 18,020 | AVG $55,888 4.2% 594 accts. 542 accts. | $7,743,983 LACKA- $5,655,297 WYOMING 6.9% 3.0% FOREST WANNA POP 766 | AVG $38,750 POP 5,394 | AVG $62,435 SULLIVAN 279 accts. | $3,041,193 POP 43,046 14 accts. | $148,145 ELK CAMERON VENANGO 5.2% AVG $62,481 1.8% POP 5,936 | AVG $62,819 POP 805 POP 695 | AVG $57,738 3,422 accts. PIKE POP 10,192 47 accts. | $314,225 AVG $56,223 464 accts. | $4,340,471 AVG $53,333 LYCOMING $46,030,237 POP 10,146 | AVG $72,772 MERCER 26 ACCTS. 6.8% 7.9% 321 accts. 7.8% CLINTON POP 23,354 | AVG $62,348 752 accts. | $5,862,099 POP 21,958 | AVG $61,244 $184,203 $3,326,963 POP 7,936 1,168 accts. | $11,305,317 3.2% LUZERNE 7.4% 845 accts. | $7,518,657 CLARION AVG $56,713 3.1% 5.0% POP 62,464 | AVG $58,440 3.8% 254 accts. DELAWARE (1) POP 7,270 JEFFERSON 3,781 accts. | $45,794,006 MONROE AVG $59,549 $2,483,138 POP 124,181 | AVG $89,514 POP 9,296 COLUMBIA 6.1% POP 33,305 267 accts. AVG $57,647 3.2% AVG $72,849 16,208 accts. | $303,659,934 LAWRENCE $1,836,575 POP 11,705 13.1% 319 accts. CLEARFIELD 1,735 accts. POP 17,259 3.7% $2,921,791 UNION 2 AVG $62,410 CARBON $16,346,271 AVG $60,795 BUTLER 3.4% POP 14,700 | AVG $52,488 CENTRE POP 8,132 724 accts. POP 12,390 5.2% 662 accts. 687 accts. | $7,256,517 AVG $67,612 $6,364,710 AVG $61,619 POP 37,867 601 accts. | $8,700,272 $6,169,185 4.7% POP 24,597 | AVG $88,799 NORTH- 6.2% 594 accts. | $4,950,711 AVG $94,854 7.4% MONTOUR (2) 3.8% ARMSTRONG 2,890 accts. | $40,819,342 UMBERLAND 4.8% 4,254 accts. NORTHAMPTON POP 3,706 | AVG $72,396 POP 12,737 11.7% SNYDER POP 18,112 SCHUYLKILL POP 8,540 | AVG $61,515 AVG $53,299 POP 60,806 BEAVER $56,801,732 AVG $61,055 366 accts. | $6,176,110 INDIANA 373 accts. | $4,457,639 924 accts. POP 28,198 | AVG $60,407 AVG $80,512 POP 32,280 11.2% 481 accts. LEHIGH 5,786 accts. 9.9% POP 15,482 MIFFLIN 4.4% $7,900,172 1,385 accts. | $11,761,954 AVG $68,031 $4,660,183 5.1% POP 83,066 $76,895,590 AVG $64,816 4.9% 9.5% 1,777 accts. 3.8% HUNTINGDON POP 10,371 JUNIATA AVG $68,379 $17,089,257 890 accts. CAMBRIA AVG $50,066 6,668 accts. 5.5% $8,840,019 BLAIR POP 8,356 244 accts. POP 5,562 $102,980,307 ALLEGHENY POP 25,764 AVG $56,089 AVG $61,858 DAUPHIN 5.7% POP 25,291 $2,072,219 BERKS 8.0% PHILADELPHIA (3) AVG $62,517 316 accts. 2.4% 181 accts. POP 62,160 BUCKS POP 229,759 | AVG $81,405 AVG $61,217 LEBANON POP 345,706 | $40,660 1,288 accts. $2,801,744 $1,298,701 PERRY AVG $64,587 POP 94,083 | AVG $67,860 POP 129,321 24,907 accts. | $387,082,085 1,358 accts. POP 31,844 $13,234,484 3.3% 5,676 accts. 5,948 accts. | $70,549,510 AVG $110,600 11,378 accts. | $152,396,457 10.8% $14,210,642 3.8% POP 9,933 | AVG $71,875 AVG $63,733 5.0% 6.3% 19,972 accts. 3.3% 5.4% 654 accts. | $5,862,843 $75,866,347 1,857 accts. WESTMORELAND 6.6% 9.1% MONTGOMERY $338,055,488 $20,265,166 POP 178,569 POP 64,906 | AVG $76,006 15.4% 5.8% AVG $111,546 WASHINGTON 5,785 accts. | $70,157,294 CUMBERLAND 30,162 accts. 8.9% $579,453,864 POP 40,548 | AVG $83,919 POP 50,553 | AVG $82,491 LANCASTER 16.9% 3,928 accts. | $55,332,329 6,977 accts. POP 128,187 | AVG $70,724 CHESTER 9.7% BEDFORD $99,342,121 13.8% 8,242 accts. | $96,423,274 POP 118,841 3 SOMERSET POP 9,555 | AVG $59,172 FULTON FRANKLIN 6.4% AVG $120,861 FAYETTE 299 accts. | $2,465,284 20,682 accts. POP 13,475 | AVG $56,746 POP 2,887 POP 34,705 ADAMS YORK 1 GREENE 3.1% $386,233,827 POP 25,302 | AVG $52,482 554 accts. | $4,471,658 AVG $60,819 AVG $69,096 POP 98,919 | $73,211 1,584 accts. POP 20,713 | AVG $75,179 17.4% POP 7,186 | AVG $59,621 869 accts. | $8,436,582 4.1% 71 accts. 1,590 accts. | $18,444,605 7,635 accts. | $85,865,278 $17,056,289 220 accts. | $2,132,241 3.4% $323,892 7.7% 7.7% 3.1% 2.5% 4.6% Joseph M. Torsella, Pennsylvania State Treasurer
$465 Million to Help Make Higher Education Possible For 31,000 Students.
The number of students who used their PA 529 accounts continued to grow. This fiscal year, 31,014 students benefited from $125.0 million in earnings. By plan, 1.41 percent more students (16,714 versus 16,481) used their PA 529 GSP accounts, while 7.06 percent more students (14,300 versus 13,357) used their PA 529 IP accounts in this fiscal year compared to fiscal year 2018-19 – reflecting the relative maturity of the plans. The amount of payouts also increased – about $464.7 million compared to $440.6 million in 2018-19 – an increase of 5.47 percent. The year- over-year increase in the PA 529 GSP was 6.60 percent, and for the PA 529 IP it was 8.18 percent. The chart below details the usage for qualified withdrawals this fiscal year and since each plan’s inception. PA 529 Payments for Higher Education
PA 529 GSP PA 529 IP Combined PA 529 GSP PA 529 IP Combined FY 2019-20 FY 2019-20 FY 2019-20 Since Inception Since Inception Since Inception (September 1, 1993) (July 17, 2002)
No. of Payments 35,917 36,927 72,844 570,925 230,162 801,087
No. of Beneficiaries 16,714 14,300 31,014 87,767 41,943 129,710
No. of Schools Attended 1,193 N/A 1,193+ 2,695 N/A 2,695+
Negative Surrender Value 2,571 227,132 N/A N/A N/A N/A Payments 7.16% 39.78%
Surrender Value* $51,601,619 N/A NA $97,498,335 N/A NA
$ Amount of Payments $241,610,445 $223,078,389 $464,688,834 $2,728,674,953 $1,389,781,722 $4,118,456,675
$63,596,636 $61,407,081 $790,028,289 $295,255,262 Amount of Gain $125,003,717 $1,087,478,284 35.73%** 37.98%** 40.75%** 26.98%**
*Surrender Value is the difference between a withdrawal's Market Value and its Tuition Inflation Value. **Average Aggregate Return.
Most significantly, this year alone, families who used their PA 529 GSP accounts for higher education collectively gained $63.6 million in growth by saving through the plan; since inception, they have gained $790.0 million for an average cumulative growth of 40.8 percent. Families taking withdrawals this year from the PA 529 IP for higher education expenses had collective gains of $61.4 million; since inception, they have gained $295.3 million for an average cumulative return of 27.0 percent.
Once again this year, PA 529 GSP qualified withdrawals illustrated the value of the plan’s guarantee. Of all the qualified payments made this year, 7.16 percent were for amounts higher than the accounts’ market value (i.e., had negative surrender values). Out of 35,917 qualified payments, 2,571 benefited from the guarantee. From the perspective of the GSP Fund this is the tenth year of significant improvement and the seventh year in a row since fiscal year 2007-08 that the overall surrender value for the year was positive – $51.6 million. Likewise, the aggregate surrender value, from the inception of the PA 529 GSP through the end of fiscal year 2019-20, remains positive. Of 570,925 payments, 227,132 (39.78 percent) had negative surrender values and, therefore, benefited from the guarantee. The total shortfall amount for all qualified withdrawals through June 30, 2020, improved to $97.5 million on payments of $2.7 billion from $46.0 million on payments of $2.5 billion last year.
13
PROGRAM CHANGES
Joseph M. Torsella, Pennsylvania State Treasurer
Minimum Contributions Reduced.
The minimum contribution amounts for both the PA 529 Guaranteed Savings Plan and the PA 529 Investment Plan were reduced to $10. Previously the minimum contribution amounts were $15 for the Guaranteed Savings Plan and $25 for the Investment Plan. The new lower contribution amounts were put into place to help make it easier for all families to begin saving for their child’s future.
Qualified Education Expenses Expanded to Include Apprenticeships and Loans.
On December 20, 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act (H.R. 1994) was signed by the President and included provisions to expand the definition of qualified 529 expenses. These expansions include using 529 savings to pay for certain expenses for a registered and certified apprenticeship program and using 529 savings for repayment of principal and interest of qualified education loans for a 529 beneficiary or sibling up to a lifetime limit of $10,000.
COVID Response.
Undoubtedly, the most significant challenge facing the country in recent memory is the nationwide outbreak of COVID-19. In early March, the Bureau took measures to prepare staff in anticipation of office closures, which began on March 16.
By mid-March, with the assistance of Treasury’s Bureau of Information Technology Solutions (BITS), all program operations, including the Bureau’s customer service call center, were shifted to remote access only. Details of the Bureau’s response to the COVID-19 situation are outlined below.
Specifics:
I. Call Center Operations
Planning to move call center operations to remote access started in early March. Ascensus, the record keeper for the plans, agreed to have calls for the Investment Plan and ABLE Savings Plan routed to their already functional teleworking call center. The Bureau’s Call Center staff were all given the proper equipment and instruction from BITS, and have been taking all PA 529 and Keystone Scholars calls from home since March 17.
Since remote operations began, the Call Center staff has been able to make outbound calls including the ability to return voicemails and call Account Owners regarding correspondence received by the plans. Emails to the plans are also being answered as usual.
Call Center Operations continue to run smoothly, even through the busy summer payment season, when call volume and Account Owner correspondence increases significantly.
II. Outreach
In early March, the Bureau restricted and subsequently postponed all travel for its field representatives indefinitely. Field representatives reached out to partner organizations to discuss upcoming events throughout the spring months. Once teleworking, field representatives have been working to update outreach plans, certain collateral material, a comprehensive event tracking document, and additional projects as requested.
17 The Pennsylvania 529 College and Career Savings Program
III. Messaging
The Bureau drafted website content, account owner emails, and also created a series of “account basics” videos for its PA 529 website in anticipation of an office and/or call center closing.
• PA 529 Website – A homepage message was added to let families know that employees would be teleworking and account owners might experience a delay in mail processing times. Additional content, including the videos referenced below, were added to the PA 529 website.
• Emails – Two emails were drafted and sent, one to PA 529 GSP account owners and one to PA 529 IP account owners. These emails reiterated that the call center might be impacted and encouraged account owners to perform routine maintenance online.
• Videos – The Bureau created six videos showing PA 529 GSP and PA 529 IP account owners how to make contributions, make withdrawals, and change tuition levels (GSP) and investment options (IP). These videos, along with instructions on how to access an account online, were added to the PA 529 homepage and mentioned in the above email.
In addition, the Bureau provided similar content and updates for the PA ABLE Savings Program and also added a page of resources specifically for individuals with disabilities impacted by COVID-19.
18 PA 529 GUARANTEED SAVINGS PLAN
Joseph M. Torsella, Pennsylvania State Treasurer
How the PA 529 Guaranteed Savings Plan Works.
The PA 529 GSP provides a unique way to save for higher education. Growth is based on tuition inflation at one of a number of different Tuition Levels initially chosen by the account owner but ultimately determined, in most cases, by where the student attends school.
Tuition Levels.
The PA 529 GSP offers five average Tuition Levels at which families may save:
• Community College Average • State System of Higher Education Average • State-Related University Average • Private Four-year College Average • Ivy League Average
Alternatively, families can save at any one of the state-funded schools – the 14 community colleges, 14 State System of Higher Education universities, or four state-related universities (University of Pittsburgh, Pennsylvania State University, Temple University, and Lincoln University).
A Tuition Level can be changed by the account owner at any time and will be automatically changed by the plan if a student attends a state-funded school that is different than the previously designated Tuition Level. Whenever a change is made, the account is recalculated as if the new Tuition Level had been in effect when prior contributions were made. Most often the recalculation will change the dollar value of the account available to pay for qualified higher education expenses.
PA 529 GSP Credit Rates.
Each year the state Treasury Department sets a PA 529 Credit Rate (“GSP Credit Rate”) for each Tuition Level, which determines the number of GSP Credits attributable to a contribution. For example, if the GSP Credit Rate for a Tuition Level were $500, a contribution of $1,000 would be equal to two GSP Credits ($1,000/$500 = 2) at that Tuition Level. The GSP Credit Rate is based on the actual per credit price for the academic year set by schools comprising the Tuition Level. For most Tuition Levels, the GSP Credit Rate has been the same as the actual rate set by the school(s), but for some Tuition Levels in some years it has been higher (that is, included a “premium”). Tuition Levels for which GSP Credit Rates include or have included premiums are those with past and projected future tuition inflation that exceed the average. Given tuition inflation history and projections, premiums help ensure the fiscal soundness of the PA 529 GSP.
The Guarantee.
The PA 529 GSP guarantees the growth on account contributions will be the rate tuition increases, at the appropriate school or Tuition Level, from when the contribution was made until when it is withdrawn for qualified higher education expenses, adjusted for any premiums and fees (an account’s “Tuition Inflation Growth”).
It is important to note, however, that meeting the guarantee is the obligation of the PA 529 GSP Fund. The guarantee is not backed by the full faith and credit of the Commonwealth. Because of the guarantee, the investment return the fund actually earns on account contributions (an account’s “Market Value Returns”) is not the growth most account owners will see. Since the vast majority of accounts are used for qualified higher education expenses, they will get their Tuition Inflation Value. A small percentage of accounts are closed and are used for nonqualified purposes. Those accounts get the lesser of the Market Value or the Tuition Inflation Value, but, if that amount is less than the principal, they get the principal, minus any fees.
21 The Pennsylvania 529 College and Career Savings Program
Actuarial Assumptions.
In order to be able to meet the guarantee, the PA 529 GSP Fund’s investment returns must meet or exceed tuition inflation and program expenses over the long term. In any given year, the fund may outperform or underperform tuition inflation and expenses but, because the plan is designed to continue indefinitely, the long-term performance is most significant.
In consultation with its investment advisors and actuary, Treasury annually projects investment returns, tuition inflation, and other actuarially relevant factors – making adjustments from year to year, if warranted, based on actual experience and market factors. After being adjusted in 2019, this year, actuarial assumptions remained unchanged. The investment return assumption remained 5.50 percent net of fees. 2020 tuition inflation projections remained the same as in 2019, ranging from 3.50 percent for Pennsylvania State University branch campuses to 5.25 percent for the main campus of the Pennsylvania State University, Pennsylvania College of Technology, Pennsylvania Private Colleges and Universities, and Ivy League Universities. The 2019 projection for overall tuition inflation weighted by the Tuition Level at which families were saving was 4.98 percent – again, over the long term and as an average. In 2020, the weighted overall tuition inflation assumption remained virtually unchanged (4.95 percent).
Asset Allocations.
To achieve the investment return goal of 5.50 percent net of fees, Treasury invested the PA 529 GSP assets in fixed income (including cash and cash equivalents), equities, and alternative investments. The allocation of assets as of June 30, 2020, is illustrated in the following chart. PA 529 GSP Actual Asset Allocations as of June 30, 2020 Total Assets: $2,123,542,814
$309,376,359 14.6% E uities $863,359,782 40.7% Fixed Income
$950,806,673 44.8% Alternatives
22 Joseph M. Torsella, Pennsylvania State Treasurer
PA 529 GSP Fund Exceeded a 100 Percent Funded Actuarial Status.
For an eighth consecutive year, the PA 529 GSP Fund was more than 100 percent funded. Based on the actuarial assumptions, as of June 30, 2020, the PA 529 GSP Fund was 127.30 percent funded, just slightly less than on June 30, 2019 (127.35 percent funded). The actuarial status is a projection of the plan’s ability to meet the obligations that existed on June 30 as they come due in the future and assumes no new contributions are received.
Subsequent to the end of the fiscal year, the GSP’s actuarial surplus increased to $492 million (129.38 percent funded) as of September 30, 2020. A small portion of this surplus (4.02%) funds over 198,000 Keystone Scholars accounts.
The actuarial funded status has more than fully recovered since hitting a low on March 31, 2009, when it was 70.4 percent funded. Correspondingly, the projected actuarial reserve was $462 million on June 30, 2020 – improved from $458 million on June 30, 2019, and its low point of -$403.4 million on March 31, 2009.
PA 529 GSP Contributions and Assets Continue to Grow.
Gross contributions into PA 529 GSP accounts totaled $217.8 million for fiscal year 2019-20, which was 4.70 percent higher than last year’s contributions ($208.0 million). The graph below shows the gross contributions by fiscal year.
PA 529 GSP Gross Contributions by Fiscal Year and % Year-Over-Year Changes
$220,000,000
$215,000,000
$210,000,000
$205,000,000
$200,000,000
$195,000,000
$190,000,000
$185,000,000
$180,000,000
$175,000,000 FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20
% Changes N/A 10.99% -0.49% 0.12% 4.70%
Contributions included $315,202 earned through the Upromise Rewards program. Account owners with linked Upromise accounts earn higher education savings through their everyday spending on items such as gas, dining out, and online shopping. Since 2006, PA 529 GSP accounts have earned $10.6 million through Upromise Rewards.
23 The Pennsylvania 529 College and Career Savings Program
As of June 30, 2020, total assets equaled $2,123,542,814 – 1.12 percent higher than on June 30, 2019 ($2,100,114,104). The following graph illustrates the change in the PA 529 GSP Fund’s assets as of the end of each fiscal year since the plan’s inception. PA 529 GSP Assets Under Management as of June 30, 2020
$2,200,000,000 $2,000,000,000 $1,800,000,000 $1,600,000,000 $1,400,000,000 $1,200,000,000 $1,000,000,000 $800,000,000 $600,000,000 $400,000,000 $200,000,000 $0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
The PA 529 GSP Remains a Successful, Lower-Risk College and Career Savings Plan.
The PA 529 GSP’s long-term investment success, actuarial status, fees, and credit pricing along with continued tuition increases mean the plan continues to be a lower-risk, but not risk-free, way to save for higher education. It is simply one of the best ways that Pennsylvania families can save for higher education.
Returns of the PA 529 GSP Fund Fund Were Positive And Growth Seen By Account Owners Was Steady.
The investment performance of the PA 529 GSP Fund for the fiscal year was 3.85 percent net of fees. The three-year annualized return was 6.11 percent and the five-year annualized return was 6.23 percent. The graph below shows the one-year returns since the plan’s inception. PA 529 GSP Fund Performance as of June 30, 2020
20.00% 15.00% 10.00% 5.00%
0.00% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
-5.00% -10.00% -15.00% -20.00%
24 Note: All returns are net of fees. Joseph M. Torsella, Pennsylvania State Treasurer
The growth realized by most account owners is not based on the investment performance of the PA 529 GSP Fund. Rather, it is based on tuition inflation. The graph below shows the increase in actual per-credit tuition costs for the five average Tuition Levels in 1995-96 through academic year 2020-21. It also provides the annualized and cumulative tuition inflation rates. Tuition Inflation by Academic Year
$2,600
$2,400 $2,345.90
$2,200
$2,000
$1,800
$1,600 $1,552.00
$1,400
$1,200
$1,000
$800 $723.74
$600
$400 $321.50*
$200 $139.80
$0
96-97 97-98 98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19 19-20 20-21
Ivy League Colleges Private Four-Year Colleges State-Related
State System Community Colleges
*Excludes East Stroudsburg University, Indiana University of Pennsylvania, Millersville University, and Shippensburg University.
This graph approximates the growth that account owners realize depending on when contributions were made. Their growth may be somewhat less, however, depending on whether premiums were in place for the years in which contributions were made and whether account maintenance fees were paid or deducted separately from their accounts.
Additionally, looking at payments made for qualified withdrawals over the plan’s lifetime, account owners who have used their accounts for higher education expenses achieved an average cumulative return of 40.75 percent.
25
PA 529 INVESTMENT PLAN
Joseph M. Torsella, Pennsylvania State Treasurer
PA 529 IP Contributions Surpassed All Previous Years.
Contributions into PA 529 IP accounts increased to $434.2 million in fiscal year 2019-20 compared to $380.2 million in 2018-19 – up 14.18 percent. This year’s contributions exceeded those made in any previous fiscal year. The following chart shows the gross contributions by fiscal year since 2015-16. PA 529 IP Gross Contributions by Fiscal Year and Year-Over-Year Changes
$450,000,000 $400,000,000 $350,000,000 $300,000,000 $250,000,000 $200,000,000 $150,000,000 $100,000,000 $50,000,000 $0 FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20
% Changes N/A 12.72% 17.07% 5.51% 14.18%
Contributions included $0.95 million earned through the Upromise Rewards program. Since 2006, contributions into PA 529 IP accounts earned through Upromise Rewards have totaled $11.0 million.
29 The Pennsylvania 529 College and Career Savings Program
Assets in the PA 529 IP as of June 30, 2020, were $3,392,639,474 compared with $3,069,917,969 as of June 30, 2019 – a year-over-year increase of 10.5 percent. The following graph shows the annual growth in assets (net contributions and market growth) since the plan’s inception on July 17, 2002. PA 529 IP Assets Under Management and % Year-Over-Year Increase as of June 30
$3,540,000,000
$3,040,000,000
$2,540,000,000
$2,040,000,000
$1,540,000,000
$1,040,000,000
$540,000,000
$40,000,000 2003* 2004 2005 2006 2007** 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% Increase N/A 179.7% 68.7% 40.1% 33.6% 22.5% 2.4% 31.6% 35.1% 13.4% 21.3% 25.8% 11.3% 8.7% 17.7% 13.7% 12.4% 10.5%
*July 17, 2002, to June 30, 2003. **Investment management transferred to Vanguard November 2006 (Direct Plan) and April 2007 (Advisor Plan).
30 Joseph M. Torsella, Pennsylvania State Treasurer
PA 529 IP Investments Saw Growth Of Over Four Percent. Overall PA 529 IP Fund Investment Performance.
This fiscal year, the PA 529 IP Fund as a whole saw investment gains of 4.04 percent. No individual account receives the returns of the PA 529 IP Fund as a whole; nonetheless, it is illustrative of how the accounts have performed collectively. The graph below shows the investment performance of the total PA 529 IP Fund since 2008. Annual PA 529 IP Fund Investment Returns* as of June 30
25.00% 20.00% 15.00% 10.00% 5.00%
0.00% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
-5.00% -10.00% -15.00% -20.00%
*Weighted average of investment portfolios’ returns.
31 The Pennsylvania 529 College and Career Savings Program
Assets and Performance by Investment Options.
The distribution of assets among the IP’s 17 different investment options has remained fairly consistent over time. The age-based options have comprised around 59 percent of total plan assets while the static options have hovered around 41 percent. Among the age-based options, the Aggressive Age-Based Option has garnered the most assets (33.84 percent), followed by the Moderate Age-Based Option (20.75 percent), leaving just 4.42 percent in the Conservative Age-Based Option. Among the static options, the Aggressive Growth Portfolio has consistently held the most assets – 9.88 percent – while the Real Estate Index Portfolio holds the least at around 0.09 percent. The following chart illustrates the distribution of assets among the 17 options as of June 30, 2020.
Distribution of Assets Among PA 529 IP Investment Options as of June 30, 2020
40%
35%
30%
25%
20%
15%
10%
5%
0%
Distribution %: 33.84% 20.75% 9.88% 8.88% 4.62% 4.42% 4.31% 3.91% 2.10% 1.95% 1.43% 1.29% 0.96% 0.86% 0.66% 0.09% 0.05%
Aggressive Age-Based - $1,149,717,403.56 Conservative Growth Portfolio - $66,088,256.82
Moderate Age-Based - $704,888,693.29 Income Portfolio - $48,451,334.31
Aggressive Growth Portfolio - $335,753,323.02 Conservative Income Portfolio - $43,874,177.58
Total Stock Market Index Portfolio - $301,850,757.25 Short-Term Inflation-Protected Securities Portfolio - $32,715,832.46
Growth Portfolio - $157,109,513.54 Total Bond Market Portfolio - $29,334,955.76
Conservative Age-Based - $150,010,225.90 Total International Stock Index Portfolio - $22,327,955.85
Interest Accumulation Portfolio - $146,336,350.53 Real Estate Index Portfolio - $2,995,609.59
Moderate Growth Portfolio - $132,803,974.98 Total International Bond Index Portfolio - $1,807,511.58
Social Index Portfolio - $71,402,261.69
32 Joseph M. Torsella, Pennsylvania State Treasurer
Returns in all of the investment options were positive. It should be noted that the Interest Accumulation, Inflation- Protected Securities, Total Bond Market Index, and Total International Stock Index Portfolios were added to the PA 529 IP in 2016 and, as such, do not yet have five-year returns. Similarly, the Total International Bond Index was added to the PA 529 IP in 2018 and the Real Estate Index Portfolio was added to the PA 529 IP in 2019 and do not yet have three- or five-year returns.
Because the vast majority of the PA 529 IP Fund’s assets are invested in index funds, they have tracked their benchmarks fairly closely, but lagged slightly primarily because program fees (ranging from 0.2150% to 0.3150% as of June 30, 2020) are reflected in the plan’s portfolio returns, but not in the benchmarks.
The chart below provides the returns by investment options for one-, three-, and five-year returns, as well as the since- conversion returns. It also gives the percentage of accounts that have at least some assets in that investment option. The total percentage of accounts exceeds 100 percent because some accounts have investments in more than one option.
33 The Pennsylvania 529 College and Career Savings Program
PA 529 IP Returns by Investment Options as of June 30, 2020
% of 1-Year 3-Year 5-Year Returns Since Accounts Returns Returns Returns Inception Age-Based Options 57.07% Aggressive 33.22% Ages 4 or Younger 5.66% 2.00% 6.23% 6.95% 6.11% Ages 5-6 5.48% 2.93% - - 3.99% Ages 7-8 5.48% 2.93% - - 3.99% Ages 9-10 2.83% 3.63% 6.24% 6.56% 5.95% Ages 11-12 3.06% 4.40% - - 5.08% Ages 13-14 3.02% 5.06% 6.17% 6.20% 5.82% Ages 15-16 2.67% 5.59% - - 5.95% Ages 17-18 2.12% 6.14% 5.64% 5.25% 5.11% Ages 19 and Older 2.90% 6.76% - - 6.76%
Moderate 19.06% Ages 4 or Younger 3.67% 2.93% - - 3.99% Ages 5-6 1.84% 3.63% 6.24% 6.56% 5.95% Ages 7-8 1.95% 4.40% - - 5.08% Ages 9-10 2.09% 5.06% 6.17% 6.20% 5.82% Ages 11-12 2.20% 5.59% - - 5.95% Ages 13-14 2.01% 6.14% 5.64% 5.25% 5.11% Ages 15-16 1.70% 6.76% - - 6.76% Ages 17-18 and Ages 19 and Older 3.60% 5.00% - - 5.00%
Conservative 4.79% Ages 4 or Younger 0.61% 4.40% - - 5.08% Ages 5-6 0.31% 5.06% 6.17% 6.20% 5.82% Ages 7-8 0.38% 5.59% - - 5.95% Ages 9-10 0.47% 6.14% 5.64% 5.25% 5.11% Ages 11-12 0.57% 6.76% - - 6.76% Ages 13-14 0.53% 5.00% - - 5.00% Ages 15-16 0.48% 4.10% - - 4.08% Ages 17-18 0.49% 3.28% - - 3.20% Ages 19 and Older 0.95% 2.30% 2.02% - 1.70%
Individual Options 48.39% Aggressive Growth Portfolio 10.41% 2.00% 6.23% 6.95% 6.11% Growth Portfolio 5.85% 3.63% 6.24% 6.56% 5.95% Moderate Growth Portfolio 4.29% 5.06% 6.17% 6.20% 5.82% Conservative Growth Portfolio 2.25% 6.14% 5.64% 5.25% 5.11% Income Portfolio 2.36% 6.37% 5.12% 4.68% 4.84% Conservative Income Portfolio 1.59% 4.88% 3.39% 2.76% 3.04% Total Stock Market Index Portfolio 9.58% 6.30% 9.84% 9.78% 7.95% Social Index Portfolio 2.97% 11.04% 12.44% 11.35% 7.75% Interest Accumulation Portfolio 2.98% 2.30% 2.02% - 1.70% Short-Term Inflation-Protected Securities Index 1.80% 3.18% 2.38% - 1.89% Portfolio Total Bond Market Index Portfolio 1.33% 8.72% 5.11% - 4.08% Total International Stock Index Portfolio 2.26% -4.26% 0.87% - 4.30% Total International Bond Index Portfolio 0.24% 3.79% - - 5.52% Real Estate Index Portfolio 0.48% -6.89% - - -4.59% 34 Joseph M. Torsella, Pennsylvania State Treasurer
Assets and Investment Performance by Underlying Vanguard Funds.
Looking at the underlying Vanguard funds in which the PA 529 IP invests, the largest portion (33.95 percent) of assets were in the Total Stock Market Index, followed by the Total Bond Market II Index at 24.41 percent, with the remaining 41.64 percent distributed among the other seven funds (17.31 percent in the Total International Stock Market Index, 10.98 percent in the Vanguard Total International Bond Index, 7.90 percent in the Pennsylvania Short-Term Reserves Account, 2.41 percent in the Vanguard Short-Term Inflation-Protected Securities Portfolio, 2.10 percent in the FTSE Social Index, 0.86 percent in the Vanguard Total Bond Market Index, and 0.09 percent in the Vanguard Real Estate Index) as of June 30, 2020. See the graph below. It should be noted that all but one of the PA 529 IP’s underlying funds are Gold- or Silver-rated by Morningstar. The remaining fund, the Vanguard Short-Term Reserves Account, is not rated by Morningstar because it is not a regular 40 Act mutual fund.
The percentage shown above each bar in the graph provides the investment performance of the underlying Vanguard mutual funds for the years shown. PA 529 IP Assets and Investment Performance by Underlying Vanguard Mutual Funds as of June 30
$1,200,000,000 $1,150,000,000 $1,100,000,000 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Returns Returns Returns Returns Returns Returns Returns Returns Returns Returns $1,050,000,000 32.02% 3.98% 21.58% 25.26% 7.25% 2.24% 18.49% 14.85% 35.51% 33.95% 3.62% 7.50% -0.85% 4.19% 1.77% 6.08% -0.44% -0.51% 24.12% 24.41% $1,000,000,000 31.05% -14.58% 13.63% 22.47% -4.55% -9.07% 20.10% 7.14% 18.58% 17.31% $950,000,000 0.20% 0.10% 0.09% 0.06% 0.06% 0.31% N/A 1.72% 10.80% 10.98% 7.28% 11.95% -5.03% 4.47% -1.80% 4.73% 0.28% 1.36% 6.37% 7.90% $900,000,000 26.57% 2.90% 24.69% 25.23% 10.74% -0.20% 21.47% 15.57% 2.24% 2.41% $850,000,000 -0.52% 1.86% 2.10% 0.52% 0.86% $800,000,000 0.09% $750,000,000 $700,000,000 $650,000,000 $600,000,000 $550,000,000 $500,000,000 $450,000,000 $400,000,000 $350,000,000 $300,000,000 $250,000,000 $200,000,000 $150,000,000 $100,000,000 $50,000,000 $0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total Stock Market Index Vanguard Total Intl Bond Index* FTSE Social Index Total Bond Market II Index PA Short-Term Reserves Total Bond Market Index Inst Total International Stock Market Index Vanguard Short-Term Vanguard Real Estate Index** Inflation-Protected Securities *Added April 27, 2018. 35 **Added April 25, 2019. The Pennsylvania 529 College and Career Savings Program
Practical Results for PA 529 IP Account Owners.
As with most investments, the PA 529 IP returns realized by an individual depend on the timing of the investment. The chart below illustrates the real-life impact of investing in the different PA 529 IP investment options using a $1,000 investment made over different time frames, giving the value on June 30, 2020.
Invested Invested Invested Invested Invested Invested Invested Invested Invested Invested Investment In On On On On On On On On On On 6/30/2010 6/30/2011 6/30/2012 6/30/2013 6/30/2014 6/30/2015 6/30/2016 6/30/2017 6/30/2018 6/30/2019
Aggressive Growth Portfolio $2,791.83 $2,116.95 $2,129.08 $1,793.51 $1,445.45 $1,399.41 $1,422.45 $1,198.86 $1,075.79 $1,020.00 Growth Portfolio $2,476.63 $1,968.39 $1,937.20 $1,693.80 $1,329.71 $1,292.24 $1,374.72 $1,199.16 $1,100.65 $1,036.30 Moderate Growth Portfolio $2,212.97 $1,847.68 $1,783.65 $1,610.81 $1,392.71 $1,350.96 $1,322.79 $1,196.77 $1,122.15 $1,050.60 Conservative Growth Portfolio $1,858.51 $1,628.13 $1,542.67 $1,461.41 $1,321.23 $1,291.78 $1,246.77 $1,178.86 $1,138.67 $1,061.40 Income Portfolio $1,657.01 $1,526.77 $1,430.37 $1,390.73 $1,289.86 $1,256.69 $1,194.46 $1,161.70 $1,142.84 $1,063.70 Conservative Income Portfolio $1,266.26 $1,227.00 $1,154.39 $1,179.75 $1,147.28 $1,145.57 $1,101.93 $1,105.13 $1,102.71 $1,048.80 Interest Accumulation Portfolio* $1,000.90 $1,000.90 $1,000.90 $1,000.90 $1,000.90 $1,000.90 N/A $1,062.65 $1,047.14 $1,023.00 Total Stock Market Index Portfolio $3,515.10 $2,662.75 $2,570.97 $2,125.47 $1,703.65 $1,594.28 $1,565.17 $1,325.06 $1,156.76 $1,063.00
Short-Term Inflation-Protected $1,195.89 $1,119.43 $1,004.87 $1,062.91 $1,021.05 $1,043.80 N/A $1,073.07 $1,062.44 $1,031.80 Securities Index Portfolio** Social Index Portfolio $3,866.47 $3,071.80 $2,998.63 $2,357.04 $1,889.87 $1,711.99 $1,721.63 $1,421.54 $1,233.77 $1,110.40 Total Bond Market Index Portfolio*** N/A $1,161.22 $1,170.59 $1,087.20
Total International Stock Index N/A $1,026.26 $962.09 $957.40 Portfolio*** Blended Growth Portfolio**** $1,111.76 $1,044.00 Disciplined Growth Portfolio**** $1,130.66 $1,055.90 Conservative Portfolio**** $1,147.24 $1,067.60 Blended Income Portfolio**** $1,106.39 $1,050.00 Moderate Income Portfolio**** $1,086.60 $1,041.00 Balanced Income Portfolio**** $1,067.81 $1,032.80
Total International Bond Index $1,116.26 $1,037.90 Portfolio**** Real Estate Index Portfolio***** $931.10
*Includes assets transferred from the Prime Money Market Portfolio on September 16, 2016. **Includes assets transferred from the Inflation-Protected Securities Portfolio on October 14, 2016. ***Added October 14, 2016. ****Added April 27, 2018 *****Added April 25, 2019.
Additionally, a look at the payments made for qualified withdrawals over the lifetime of the plan shows account owners who have used their accounts for higher education expenses, on average, achieved a cumulative return of approximately 26.98 percent.
36 SUBSEQUENT CHANGES
Joseph M. Torsella, Pennsylvania State Treasurer
PA 529 IP Fees Reduced Again.
Effective October 9, 2020, the fee for each investment option was reduced by 0.5 basis points (0.005%). The PA 529 IP fees now range from 0.2100% - 0.3100%. This reduction is a result of an increase in assets under management and the Treasury anticipates future fee reductions for IP account owners when certain funding thresholds are met as the IP asset value continues to grow. This latest reduction continues a multi-year record of working to reduce fees for PA 529 savers.
PA 529 IP Investment Option Changes.
In its 2020 529 Landscape Report, Morningstar explained the benefits of utilizing smoother glidepaths in 529 plans’ age-based investment options. Morningstar’s research indicates that smoother glidepaths, 10 percentage points or less, reduce variability in outcomes while improving, or having no effect on, average returns.
As Treasury constantly seeks to improve PA 529, the decision has been made to adopt a target-enrollment date approach, replacing the three current age-based options (conservative, moderate, and aggressive) with a single option offering more gradual changes from equity to bonds and cash as the beneficiary approaches their date of postsecondary enrollment.
Assets of those PA 529 IP account owners who are currently saving in one of the age-based options will be transferred via a predetermined mapping to the new portfolio. The exact composition (equity/bond mix) of their investment will be based upon the expected date of postsecondary enrollment. Clear communications will be sent to account owners beginning approximately 30 days prior to the change, expected to take place during the second quarter of 2021. Account owners will be given the opportunity to transfer their funds to another investment option within the IP if they choose not to utilize the target-enrollment date option.
39
FINDINGS AND RECOMMENDATIONS
Joseph M. Torsella, Pennsylvania State Treasurer
Findings and Recommendations.
The program’s enabling legislation requires the annual report to present findings and recommendations.
By Virtually Any Metric, the Program Continues to Excel.
• The total number of accounts across both PA 529 plans grew to 250,968 – an increase of 5.12% from last year (238,741).
• During this fiscal year, PA 529 account owners contributed $652 million compared to $588.2 million last year – an increase of 10.84%.
• Total assets across both PA 529 plans grew to $5.52 billion – an increase of 6.15% from last year ($5.20 billion).
• 31,014 students used their PA 529 accounts to pay for qualified higher education expenses this year and garnered more than $125.0 million in earnings. Comparatively, last year, 29,838 students used their PA 529 accounts to pay for qualified higher education expenses, with $110.0 million in earnings.
• As of June 30, 2020, there were 175,896 participants in Keystone Scholars. Approximately, 10% of participants have created online accounts and 20% of those have linked a PA 529 account of their own.
The Commonwealth Should Eliminate the PA 529 Program’s Competitive Disadvantage.
Pennsylvania provides a tax deduction for contributions made to any 529 program, while most other states limit such deductions to only those contributions made to their home-state programs. Thirty-eight of the 42 states (and D.C.) with income taxes provide a state income tax deduction or credit for 529 contributions; 31 of those 38 limit the deduction to home-state program contributions. Pennsylvania is one of the seven states that give a tax deduction for participants in non-home-state 529 programs – and it is the only large state to do so. This puts Pennsylvania’s program at a competitive disadvantage and undoubtedly leads many Pennsylvania families to make uninformed decisions on the best way for them to save for postsecondary education. This disadvantage is evidenced by a number of factors:
• Disparity in 529 plan penetration rate. The PA 529 IP has a penetration rate of 4.22%, while similar out-of- state plans marketed nationally have a penetration rate of 7.85%.
• Loss of PA 529 contributions. Based on available data, Pennsylvanians invest over $1 billion in other states’ 529 plans.
• Loss of Tax Revenue. It is estimated that Pennsylvania loses $8.5 million in tax revenue annually due to this inequity.
Many Pennsylvanians who are sending their higher education savings out of state may be unaware of the Commonwealth’s 529 program benefits. Many financial advisors do not or cannot inform their clients of the Pennsylvania 529 plans because of the existing tax deduction policy. Furthermore, Pennsylvanians effectively subsidize other states’ 529 programs because the savings they put into out-of-state plans help to cover the expenses of those plans. Many plans waive or reduce account fees for in-state participants, and some use revenues from their programs (generated in part from Pennsylvanians) to provide scholarships only for their own state’s residents.
The current inequitable playing field disadvantages Pennsylvania’s program and, consequently, those families that are loyal to their home-state options.
43 The Pennsylvania 529 College and Career Savings Program
Eliminating the unfair advantage that Pennsylvania currently grants to other states’ 529 plans would result in lower fees and other benefits for Pennsylvania families. We recommend that the Governor and General Assembly enact legislation that would halt the subsidization of other states’ 529 plans by offering a state tax deduction only for contributions to a PA 529 account.
This inequity was shared with Pennsylvanians in the September 2020 edition of Treasury Notes (attached).
The Commonwealth Should Enact Legislation to Ensure that PA 529 GSP Withdrawals for Elementary and Secondary School Expenses are Treated Appropriately.
In 2018, Congress passed federal legislation that allowed elementary and secondary school expenses to be considered qualified withdrawals from 529 plans.
The PA 529 GSP was designed to assist Pennsylvanians to save and pay for postsecondary education. The tuition levels created reflect the original intent of the legislation. The TAP Act should be amended to ensure that K-12 expenses are paid using an appropriate tuition level, as determined by Treasury.
The Commonwealth Should Increase its Support of the PA 529 College and Career Savings Program.
Policy makers should consider initiatives and collaborations among Commonwealth entities and institutions to build awareness, increase utilization, and enhance the benefits of the PA 529 College and Career Savings Program.
By working together, much can be accomplished with budgetary and nonbudgetary solutions.
The Commonwealth Should Consider Offering a Tax Credit to Pennsylvania Employers for Providing Matching Contributions to a Pennsylvania 529 Plan.
The Commonwealth could incentivize employers to encourage their employees to save for higher education by offering a modest tax credit for matching contributions. The states that currently allow such tax credits – Arkansas, Colorado, Illinois, Nebraska, Nevada, Wisconsin, and Utah – give employers 25 percent tax credits on matching contributions up to $500 per employee.
The positive effect that this would have on higher education savings cannot be overstated. In much the same way as matching contributions to employees’ 401(k) accounts has led to increased retirement savings, matching 529 plan contributions will inspire employees to save for higher education. Research in the area of retirement security has found that employees who have access to a payroll deduction savings plan at the workplace are 15 times more likely to save for retirement than employees without workplace access.10 Furthermore, matches have been found to increase participation in such plans by as much as ten percentage points.11
Additionally, while the PA 529 College and Career Savings Program already partners with employers across the Commonwealth to host informational sessions at employee benefit fairs and offer employees the ability to make direct deductions from their paycheck into a PA 529 account, a tax credit would persuade even more Pennsylvania employers to work with the Program to educate their employees and encourage them to save for their family members’ postsecondary educations.
The Commonwealth should consider all reasonable measures, such as this, that will make saving for higher education less burdensome for its citizens.
10 Employee Benefit Research Institute. 2006. Unpublished estimates of the 2004 Survey of Income and Program Participation Wave 7 Topical Module (2006 data). Data are for workers earning between $30,000 and $50,000. In “John, D. and Antonelli, A. February 2017. “Facts and Fallacy about State-Facilitated Retirement Savings Plans,” AARP, https://www.aarp.org/content/dam/aarp/ppi/2017-01/Retirement%20 Access%20Race%20Ethnicity.pdf. 11 Benartzi, S. and Nelson, C. October 9, 2020. “Employers Need to Reinvent Retirement Savings Match,” Harvard Business Review. Accessed October 23, 2020. https://hbr.org/2020/10/employers-need-to-reinvent-retirement-savings-match. 44 Joseph M. Torsella, Pennsylvania State Treasurer
The Commonwealth Should Consider Expanding the Keystone Scholars Program to Provide an Incentive for Pennsylvanians from Lower Income Families.
As has been discussed elsewhere in this report, as of June 30, 2020, the GSP was 127.30% funded. That number grew to 129.38% as of September 30, 2020. This surplus already accounts for and covers the 187,197 Keystone Scholars accounts that were funded with $100 each as of September 30, 2020. A small portion of this healthy surplus could be put to use to help those Pennsylvanians who are least able to afford higher education by providing them with additional deposits.
Dr. Michael Sherraden, the researcher who originally proposed the idea of child development accounts (CDAs),12 and his colleagues at the Center for Social Development at Washington University in St. Louis have published ten “Key Design Elements” that all CDAs should strive to incorporate.13 These key design elements are considered best practices in the CDA field, and include universal eligibility, automatic enrollment, and automatic progressive subsidies.
While Keystone Scholars legislation envisions all ten elements, in practice the automatic progressive subsidy is the only element that the program has yet to operationalize and fund. This element is particularly important for making asset building more equitable between advantaged and disadvantaged children so that all young people have an equal opportunity to reap the benefits of higher education.
There has been some experimentation with automatic progressive subsidies at the local level that Pennsylvania could learn from, but no statewide CDA has implemented this type of subsidy. As a result, Pennsylvania could be the first statewide CDA to implement such a subsidy.
Considering the GSP’s existing surplus and the need to assist disadvantaged Pennsylvania children in attaining higher education, the Commonwealth should consider amending Keystone Scholars legislation to allow for the use of a small portion of the GSP surplus to fund an automatic progressive subsidy that will aid those who most need to achieve their higher education goals.
12 Child development accounts (CDAs) are also referred to interchangeably as child savings accounts (CSAs). 13 Sherraden, M., Clancy, M., & Beverly, S. (2018). Taking Child Development Accounts to Scale: Ten Key Policy Design Elements (CSD Policy Brief 18-08). St. Louis, MO: Washington University, Center for Social Development. https://doi.org/10.7936/K71C1WF9. 45 The Pennsylvania 529 College and Career Savings Program
46 Joseph M. Torsella, Pennsylvania State Treasurer
47 The Pennsylvania 529 College and Career Savings Program
48 Joseph M. Torsella, Pennsylvania State Treasurer
49
APPENDIX
Joseph M. Torsella, Pennsylvania State Treasurer
Appendix I
NEWS RELEASE
For Immediate Release October 28, 2020
TREASURER TORSELLA ANNOUNCES FIRST-EVER MORNINGSTAR SILVER RATINGTM FOR PA 529 INVESTMENT PLAN New upgraded rating puts PA 529 Investment Plan in elite group of “Best in Class” 529 plans Harrisburg, PA – Pennsylvania Treasurer Joe Torsella announced today that the PA 529 College and Career Savings Program Investment Plan (IP) has received a rare Morningstar Silver RatingTM as part of Morningstar’s review of the Top 529 College Savings Plans of 2020. This is the IP’s second upgrade in two years after last year’s Morningstar Bronze RatingTM. Nationwide, only fourteen plans rated as Silver (11) or Gold (3). “PA 529 plans offer smart, simple and affordable postsecondary education savings options for Pennsylvanian families,” said Treasurer Torsella. “I am so proud to announce this upgraded rating from Morningstar, which reflects the dedication and diligence of the Treasury team to continue to improve this important savings tool for Pennsylvanians. Our work does not stop here. We will continue to make every improvement possible to help more families save their hard earned money for their child’s future higher education goals. Each child’s success improves not only their own lives and the lives of their families, but the well-being of the whole Commonwealth.” Morningstar’s rating system ranks plans based on four pillars including Process, People, Parent, and Price. Morningstar recognized the IP’s thoughtful design and low fees. It also commended the plan’s diligent stewardship including its strong investment management and its ability to maintain checks and balances ensuring investment integrity. The IP recently reduced fees by one-half basis point (0.005%) and continues to have some of the lowest fees when compared to similar 529 plans in other states. Morningstar also recognized and praised the PA 529’s addition of Keystone Scholars, the first legislated, universal at-birth children’s savings program in the nation. Keystone Scholars offers babies born in Pennsylvania, and those subsequently adopted, from 2019 onward with $100 starter deposits. The IP provides Pennsylvania families with 17 different investment options through Vanguard, offering varying degrees of risk including three age-based portfolios. Returns for IP accounts are based on market performance. Pennsylvania families currently have more than $3.6 billion dollars invested in the IP for future education expenses. Along with the IP, the PA 529 College and Career Savings Program offers the Guaranteed Savings Plan (GSP). The GSP lets families save money for tomorrow’s tuition at today’s prices, with returns based on tuition inflation. Both PA 529 plans offer tax benefits. Contributions are deductible from PA state income tax and balances are exempt from state inheritance tax. PA 529 assets are not counted when determining state financial aid. Families can start saving with IP or GSP plans with as little as $10 and can contribute at any time. For more information about the PA 529 College and Career Savings Program visit www.pa529.com and follow all of the department’s news on Facebook and Twitter. Media contact: Ashley Matthews, Treasury, 717-787-2991 or [email protected].
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PENNSYLVANIA TREASURY DEPARTMENT JOE TORSELLA, STATE TREASURER
www.patreasury.gov | Facebook | Twitter
53 The Pennsylvania 529 College and Career Savings Program
The Pennsylvania 529 College and Career Savings Program sponsors two plans – the PA 529 Guaranteed Savings Plan (GSP) and the PA 529 Investment Plan. The guarantee of the PA 529 GSP is an obligation of the GSP Fund, not the Commonwealth of Pennsylvania or any state agency. Before investing in either plan, please carefully read that plan’s disclosure statement (available at www.pa529.com or by calling 1-800-440-4000) to learn more about that plan, including investment objectives, risks, fees, and tax implications. Before you invest, consider whether your or the beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in that state’s qualified tuition program. The Pennsylvania Treasury is an independent department of state government led by the state treasurer, who is elected every four years. The department’s primary duty is to safeguard and manage the state’s public funds. It invests state money to generate income on behalf of the citizens of Pennsylvania, reviews and processes payments for the state government, and serves as custodian of more than $100 billion in state funds. Key Treasury programs include Unclaimed Property, the PA 529 College and Career Savings Program and the Board of Finance and Revenue. To learn more, visit patreasury.gov.
54 Joseph M. Torsella, Pennsylvania State Treasurer
Appendix II
NEWS RELEASE
For Immediate Release July 6, 2020
TREASURER TORSELLA LOWERS MINIMUM CONTRIBUTION FOR PA 529 COLLEGE AND CAREER SAVINGS PROGRAM New, low minimum contribution of $10 helps remove barriers for low-income families Harrisburg, PA – Pennsylvania State Treasurer Joe Torsella lowered the minimum contribution for the PA 529 College and Career Savings Program (PA 529) to $10. Previously the minimum contribution amount for the Guaranteed Savings Plan (GSP) was $15, and the Investment Plan’s (IP) was $25. “In good times and hard times, the biggest barrier to saving for a future is knowing how to start. Now, Pennsylvania families need just $10 to begin saving for their child’s future,” said Treasurer Torsella. “Pennsylvania graduates carry some of the highest student debt loads in the nation. By starting early with just $10, families can grow those savings over time and reduce the amount of debt their children may have to carry.” The PA 529 GSP is a lower-risk savings option where returns are based on tuition increases. GSP account owners save for future tuition rates at today’s prices, by purchasing tuition credits in real-time. The PA 529 IP includes 17 different investment options, including 3 age-based options, through Vanguard. This variety allows families to choose the level of investment risk they are most comfortable with. The IP also has some of the lowest fees when compared with similar plans in other states. The PA 529 IP recently earned a top-ten ranking by SavingForCollege.com for one-year performance. Additionally, in 2019, the IP was recognized with a Morningstar Bronze Rating. This rating puts the IP plan among an elite group of Top 529 College Savings Plans for 2019 analyzed and rated by Morningstar. Account owners also receive numerous tax benefits including federal and Pennsylvania tax-free growth and tax- free withdrawals for qualified expenses, contributions that are deductible from PA state income taxes and account balances that are exempt from state inheritance tax. Assets in PA 529 accounts do not count against families when determining state financial aid eligibility, a benefit that is exclusive to PA 529. In addition, all babies born or adopted to a PA family after December 31, 2018, receive a $100 starter deposit to a PA 529 account, as part of Treasurer Torsella’s Keystone Scholars program. Families currently have more than $5.5 billion in assets invested in PA 529 accounts. Over the life of the PA 529 program, it has paid out more than $4 billion in qualified education expenses. For more information about the PA 529 College and Career Savings Program visit www.pa529.com and follow all of the department’s news on Facebook and Twitter. Media contact: Ashley Matthews, Treasury, 717-787-2991 or [email protected].
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PENNSYLVANIA TREASURY DEPARTMENT JOE TORSELLA, STATE TREASURER
www.patreasury.gov | Facebook | Twitter
55 The Pennsylvania 529 College and Career Savings Program
Keystone Scholars is open to Pennsylvania residents born after December 31, 2018 and children born after December 31, 2018 who are subsequently adopted by a Pennsylvania resident. The child must be a Pennsylvania resident at birth or adoption and at the time the Keystone Scholars funds are used. The child must also be the Beneficiary of a PA 529 account other than the Keystone Scholars Account at the time Keystone Scholars funds are used. If not used by the beneficiary’s 29th birthday, the funds will be returned to the Pennsylvania Treasury Department (Treasury). Funds in a Keystone Scholars Account will be invested in a PA 529 GSP account and will remain under the sole custody of Treasury until they are used for the purposes of paying for qualified higher education expenses at an institution of higher education. A list of qualified higher education expenses may be found at www.pa529.com. No additional funds may be contributed to a Keystone Scholars Account. However, families are encouraged to save in their own PA 529 account. The Pennsylvania Treasury is an independent department of state government led by the state treasurer, who is elected every four years. The department’s primary duty is to safeguard and manage the state’s public funds. It invests state money to generate income on behalf of the citizens of Pennsylvania, reviews and processes payments for the state government, and serves as custodian of more than $100 billion in state funds. Key Treasury programs include Unclaimed Property, the PA 529 College and Career Savings Program and the Board of Finance and Revenue. To learn more, visit patreasury.gov.
56 613 North Drive Harrisburg, Pennsylvania 17120 pa529.com 717-772-5000
The Pennsylvania 529 College and Career Savings Program sponsors three plans – the PA 529 Guaranteed Savings Plan (GSP), the PA 529 Investment Plan (IP), and Keystone Scholars. The guarantee of the PA 529 Guaranteed Savings Plan is an obligation of the GSP Fund, not the Commonwealth of Pennsylvania or any state agency. Before investing in either PA 529 plan, please carefully read that plan’s disclosure statement (available at www.pa529.com or by calling 1-800-440-4000) to learn more about that plan, including investment objectives, risks, fees, and tax implications. Before you invest, consider whether your or the beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in that state’s qualified tuition program