The Depository Trust & Clearing Corporation (DTCC) said today that it has enhanced its Mutual Fund Services to decrease the complexity of processing 529 college savings plans for broker/dealers and other financial distributors.
529 Plans, which can be used to pay tuition at any qualified college nationwide, are popular investment vehicles that allow contributions to grow tax-deferred. The plans are municipal securities, so each individual state has its own program requirements and, typically, sharply differing administrative methods. This results in high administrative and processing costs.
To help financial firms overcome these challenges, DTCC's National Securities Clearing Corporation (NSCC) subsidiary expanded the functionality of its Mutual Fund Services, including Fund/SERV® (its transactional hub) and Networking (a core service that reconciles account-level information between funds and distributors) in order to provide firms the necessary details on 529 Plan transactions and activities. The modifications allow parties to identify a transaction as specific to a 529 Plan; to capture information such as the beneficiary's social security number and address, and to calculate cost-basis and earnings-to-date dollar amounts.
"NSCC has an extensive track record of offering valuable services to the mutual fund market for nearly 30 years, and the efficiencies built into our services have been instrumental in the growth of that market to over $12 trillion," said Ann Bergin, managing director and general manager, DTCC Wealth Management Services. "This is an opportunity for us to expand our services to help yet another segment of the funds market, especially at a time when assets are coming back and growth prospects are strong."
Assets in 529 Plans reached a peak of $112 billion in 2007, dropped sharply during the recession and financial crisis of 2008, and sprang back in 2009. Citing information provided by the Financial Research Corp., Savingsforcollege.com says total assets in all 529 Plans stood at $111.1 billion as of the end of the third quarter of 2009. That's up 13 percent from the second quarter of the year, when the total value of 529 Plan assets was $98.6 billion, and up 24 percent from the first quarter total of $89.5 billion.
"For broker/dealers and sponsors of 529 Plan programs, this new technology paves the way for a more efficient processing environment," noted Lisa M. Klassen, group leader, Edward Jones. Klassen is a member of the Investment Company Institute's Broker/Dealer Advisory Committee that, along with the ICI's Bank/Trust Advisory Committee, worked with NSCC to develop the enhancements. "There is a great deal of specific information that needs to be communicated between parties, and until now that's been done via phone and fax. NSCC's ability to create a standardized and automated alternative streamlines that process; it will directly benefit any firm that is active in these programs."
The changes NSCC made also address a growing practice by broker/dealers to hold 529 Plan customer accounts directly on their own platforms. Such transactions have been processed traditionally by program managers at mutual fund transfer agents. "Having more transparency of information, which these system enhancements provide, will ease compliance requirements for intermediaries, and help to move the industry toward a more efficient processing environment," said Kathy Joaquin, director of Operations and Distribution for the Investment Company Institute.
529 Plan transactions were introduced onto the Fund/SERV system in 2001. Fund/SERV processes and settles an average of 780,000 mutual fund orders daily.