AllianceBernstein loses $7B RI CollegeBoundfund contract

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CollegeBoundfund website_206059

PROVIDENCE, R.I. (WPRI) – AllianceBernstein LP confirmed Tuesday that it has lost the state contract to manage Rhode Island’s huge 529 college savings plan, the CollegeBoundfund, after a 15-year run.

In a statement, the investment firm said the CollegeBoundfund “will transition to a new manager as of July 1, 2016, pending the approval of Rhode Island’s State Investment Commission and the SIC’s negotiation of a contract with its selected provider.”

General Treasurer Seth Magaziner said Wednesday the CollegeBoundfund will now be managed in a partnership between Invesco Ltd., an investment firm, and Ascensus College Savings Inc., which will handle administrative tasks. The selection of Invesco and Ascensus was approved Wednesday by the State Investment Commission, which Magaziner chairs.

As part of the agreement, Ascensus has agreed to open a 35-person Rhode Island office by June 2016.

“As a lifelong resident of Rhode Island, I couldn’t be happier about the prospect of creating jobs within my home state while also helping parents, grandparents, friends, and families to save for a child’s higher education,” Jeff Howkins, president of Ascensus, said in a statement.

The decision to change companies affects more than $7 billion in state-controlled funds and will impact the cost of college for thousands of Rhode Islanders; AllianceBernstein has transferred the state more than $53 million over the last 10 years to fund college scholarships for Rhode Islanders as part of its contract.

“Under our management, the program has grown from 1,700 to more than 400,000 accounts and from $8 million to $7.4 billion in program assets, to become the nation’s third-largest advisor-sold 529 plan,” Robert Keith, head of AllianceBernstein global client group, said in a statement Tuesday.

“We are very proud of our long-time partnership with the state to help families across the country save for college,” he said.

While the CollegeBoundfund’s impressive size was undeniable, the Rhode Island 529 plan has also been criticized for its fees and performance under the stewardship of AllianceBernstein, whose management contract expires next June.

Magaziner’s office created a selection committee that worked with a consultant, Indianapolis-based Capital Cities LLC, to narrow the initial bidders down to a short list of finalists, which were not publicly identified. Anne-Marie Fink, the state’s chief investment officer, and Capital Cities conducted site visits with them in October.

Congress created the tax-advantaged 529 plans, named for the section of the IRS code that regulates them, to help families save money to pay for college. Each state can set up a 529 program and market it across the country, which has led to competition for accounts nationwide, and Rhode Island was one of the first to do so.

Despite being a Rhode Island plan, only a tiny portion of the CollegeBoundfund’s assets – about $350 million – belonged to Rhode Islanders as of June 30. The rest were held by out-of-state residents. Californians, for example, have socked away nearly $1 billion through Rhode Island’s plan.Ted Nesi (tnesi@wpri.com) covers politics and the economy for WPRI.com. He hosts Executive Suite and writes The Saturday Morning Post. Follow him on Twitter: @tednesi

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