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Rating:Will Payroll Deduction Boost 529 Sales? Not Rated 3.0 Email Routing List Email & Route  Print Print
Wednesday, January 09, 2002

Will Payroll Deduction Boost 529 Sales?

Reported by Sean Hanna, Editor in Chief

While many fund firms hope that 529 college savings plans evolve into the next 401(k) plan, few are as of yet making the public push into the corporate market that Waddell & Reed is.

The Kansas-based firm is pushing employers to offer its InvestEd 529 program through payroll deduction as a perk for employees. To encourage this, it will allow investors to invest with monthly contributions through the workplace of as little as $25.

The InvestEd program has attracted $32.5 million in assets in more than 4,200 accounts since its creation under the Arizona Family College Savings Program October 1, 2001.

Thomas W. Butch, executive vice president and chief marketing officer with Waddell & Reed likens the program to the highly effective strategy of using payroll deduction in the 401(k) market.

Yet, replicating the success of 401(k) plans by distributing 529 plans through employers may not be such an easy task. For one, the sale to the employer is very different than a sale to a retail or high-net-worth client.

Waddell & Reed is not among the leading providers of qualified plan products and may discover that it is edged out by competing vendors with stronger existing distribution to employers in that market.

There is also the problem of this type of distribution creating numerous small and unprofitable accounts. Many of the successful players in the 401(k) market have discovered that average balance size is more important than the assets in a plan or the number of employees it covers. Unfortunately, there are as of yet no existing account balances in the 529 market.

Waddell & Reed is also making the program free of charge to plan sponsors. While this may encourage employers to take a look, that strategy also further adds to the pressure for the program to avoid low balance accounts in order to be successful. 

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