Thirty-four plans are Morningstar Medalists, and two receive Negative ratings.
Each year, we assign Morningstar Analyst Ratings to college savings plans based on five key pillars--Process, People, Parent, Price, and Performance. When evaluating 529 plans, we may also take into consideration the unique benefits that plans offer to college savers, including local tax breaks, grants, and scholarships, which can influence a plan's Analyst Rating but usually do not drive the overall outcome.
In 2017, Morningstar identified 34 plans that it believes to be best-in-class options, assigning these programs Analyst Ratings of Gold, Silver, and Bronze. These plans for the most part follow industry best practices, offering some combination of the following attractive features: a strong set of underlying investments, a solid manager selection process, a well-researched asset-allocation approach, an appropriate set of investment options to meet investor needs, low fees, and strong oversight from the state and program manager. These features improve the odds that the plan will continue to represent a strong option for investors. Gold-rated plans have all or a vast majority of these attributes. Silver- and Bronze-rated plans embody most of these qualities but often have some room for improvement.
Meanwhile, 26 plans earned Neutral ratings. These plans remain unexceptional, because either weaker aspects offset stronger ones or an element of uncertainty, such as an investment team change, clouds their prospects. Some Neutral-rated programs may hold appeal for in-state residents because of meaningful added benefits, such as local tax breaks, so investors should research their state's particular benefits.
Just two plans received Negative ratings in 2017. These plans generally lack compelling traits and have at least one major flaw that makes them worth avoiding. Nationwide, there are 84 529 college savings plans, and these 62 ratings represent more than 95% of assets invested in 529 plans.
This year, Morningstar upgraded six plans and downgraded three, compared with six upgrades and six downgrades in 2016. We also dropped coverage of Illinois’ advisor-sold Bright Start College Saving plan, which will merge into Illinois’ other advisor-sold plan, Bright Directions College Savings Program, in November 2017.
The 529 industry made meaningful improvements over the last year, with many plans reducing expenses and improving the asset-allocation approach used within the age-based portfolios by smoothing out the transition from stocks to bonds as the beneficiary ages.
This article focuses on this year's upgrades. Part two of this series publishes on Thursday and will detail the downgrades along with industry trends that these plans have not kept pace with.
In-depth analyses of all 62 plans under coverage are located in the 529 Plan Center on Morningstar.com.