OppenheimerFunds Inc. is betting that it can turn around Texas' 529 savings plan program through a combination of lower fees, better fund performance, and better service.
The program, founded in the fall of 2002, struggled with poor performance under its previous manager, Axa Enterprise Capital Management Inc. in Atlanta, and it has gathered a modest $230 million of plan assets.
William Raynor, the vice president of 529 plan national sales for OFI Private Investments Inc., a subsidiary of OppenheimerFunds, said the program's growth is hard to project but that it will exceed its previous pace. "We are going to do better than that, for sure," he said.
Texas is the second state this year in which OppenheimerFunds, a New York unit of Massachusetts Mutual Life Insurance Co., has taken over a troubled plan. It began work in Illinois this summer and quickly reduced program costs.
College savings plans let participants build an education nest egg while avoiding federal and state taxes. A plan beneficiary can have as much as $257,460 deposited into an account on his or her behalf.
OppenheimerFunds took over the Texas program in mid-November. Assets in Axa Enterprise funds were shifted to Oppenheimer funds, Mr. Raynor said, and average account expenses fell 41 basis points.
The Texas plan's fees had been among the highest for any state, according to Savingforcollege.com, an informational college savings plan Web site. And the Axa funds' investment performance was "subpar" compared with other states' offerings, said Joe Hurley, the founder of Savingforcollege.com LLC.
"It had a lot of different money managers that many people were not familiar with, and that may have made it a little confusing," he added.
OppenheimerFunds, meanwhile, "has made a major commitment to its 529 initiative" and can turn the plan around with better marketing, performance, and distribution, he said.
Among the steps OppenheimerFunds is taking has been to distinguish more sharply between direct-sold and adviser-sold 529 plans. Its adviser-sold plan, dubbed LoneStar 529, has age-based and static portfolios that are actively managed, as well as a range of individual fund portfolios. The direct-sold Texas College Savings Plan offers blended and index portfolios in both the age-based and static options.
The fund company is making what it calls an improved effort to court advisers, who, Mr. Raynor said, account for most 529 plan sales. It is important to do so because Texans, who pay no state income tax, cannot benefit from this potential tax advantage over using another state's plan. Withdrawals from any state's 529 plan are federal income tax-exempt.
OppenheimerFunds has 10 wholesalers dedicated to covering Texas, Mr. Raynor said. "You need a differentiator, and for us it's the feet on the ground."
Performance and low costs are the other reasons the company hopes Texans and non-Texans will use its program, he said.
Texas' 529 plan has been the only state-based option for helping manage college costs since 2003. That year, the state froze its $1.8 billion-asset prepaid tuition plan, which had let residents pay current tuition rates to cover tuition in the future. The state plans to introduce another version of the prepaid tuition plan by next September. Unlike its predecessor, this plan would cover future tuition only if its investment returns keep pace with tuition increases.
Texas is the fourth state whose 529 program OppenheimerFunds manages. It manages assets totaling about $4.5 billion for New Mexico, Oregon, and Illinois.
Mr. Raynor said he has no doubt that advisers directed many Texans to out-of-state 529 plans. His company will try to entice such savers into the Texas plan by letting them, from January through April, transfer their assets without sales charges.
