Ohio 529's Investment Option Change Set For Friday, Oct. 23
Effective this Friday, Oct. 23, 2020, the Vanguard Money Market Portfolio will be converted into the Interest Accumulation Portfolio. The Vanguard Money Market Portfolio is one of the individual investment options available in the Ohio Direct 529 Plan. It is also in the underlying asset allocation in the Vanguard Ready-Made Age-Based Portfolios, in the later age brackets of the Moderate and Conservative Age-Based Portfolios, as well as the Vanguard Conservative Growth Index Portfolio and the Vanguard Income Index Portfolio. The Vanguard Money Market Portfolio is also included in the underlying asset allocation of the 2026, 2024, 2022, and the Graduate Funds in the Advantage Age-Based Portfolios (AABP).
Ohio’s 529 Plan longtime investment partner, Vanguard, has recommended that Federal Money Market Portfolio be converted to a Stable Value Market Portfolio, called the Interest Accumulation Portfolio. This proposal is based on the historical low interest rate environment, which is causing the fees paid by customers to erode any yield that customers are earning on Money Market products. The yield profile of Stable Value investments versus Money Market funds has improved significantly over the past six months. Given the forecast for a prolonged low interest rate environment, moving to a Stable Value product will provide the potential for modest gains net of fees, which is attractive when compared to a zero to negative net of fee return profile offered by Money Market funds. The Interest Accumulation Portfolio will potentially offer a better yield in a risk-diversified product with a competitive fee structure.
This change requires no action on your part and will not be counted as one of your two yearly permissible exchanges as it’s being initiated by Ohio’s 529 Plan.
As a result, holdings in the Money Market Portfolio will automatically become holdings of the Interest Accumulation Portfolio. Any contributions for the Money Market Portfolio received after 4 p.m. ET on Thursday, Oct. 22, will be automatically allocated into the Interest Accumulation Portfolio.
Following the conversion of Money Market Portfolio into Interest Accumulation Portfolio, the investment objective will remain the same, which is to seek income consistent with the preservation of principal.
The Portfolio is subject to credit risk, income risk, manager risk, industry concentration risk, and derivatives risk. A note for credit risk: Funding agreements are backed by the financial strength of the insurance companies that issue the contracts. Every effort is made to select very high-quality insurance companies. However, the portfolio may lose value if an insurance company is unable to make interest or principal payments when due. Industry concentration risk is the chance that there will be overall problems affecting a particular industry in which an underlying fund has a large investment. Because the Interest Accumulation Portfolio invests in an underlying fund that invests more than 25% of its assets in securities of companies in the financial services industry, the portfolio’s performance will depend to a greater extent on the overall condition of that industry. For additional information, please see RISK FACTORS for a detailed description of these risks in the CollegeAdvantage Direct Plan 529 Savings Plan Offering Statement and Participation Agreement, beginning on page 43.
For account owners who have elected to invest in the Money Market Portfolio, your funds will automatically be moved to the Interest Accumulation Portfolio on this Friday, Oct. 23, 2020. This change requires no action on your part and will not be counted as one of your two yearly permissible exchanges as it’s being initiated by Ohio’s 529 Plan, CollegeAdvantage.
For account owners who are invested in the 2026, 2024, 2022, or Graduate Fund within the AABP, those funds will be moved from the Money Market Portfolio into the Interest Accumulation Portfolio. This change requires no action on your part and will not be counted as one of your two yearly permissible exchanges as it’s being initiated by Ohio’s 529 Plan, CollegeAdvantage.
If you currently invest in the Money Market Portfolio as an individual investment option and choose to change from the Money Market Portfolio to another investment prior to 4 p.m. ET Thursday, Oct. 22, 2020, that transfer would count as one of your two annual fund exchanges maximum limitation. Internal Revenue Code (IRC) Section 529 rules state that an investment option exchange is only allowed twice per calendar year, per beneficiary.
If you do not invest in Money Market Portfolio, this change will not impact your account and there is no action necessary.
An account owner cannot transfer assets in an account directly from Interest Accumulation Portfolio to an investment option that is considered a competing investment option. Thus, reallocations from the Interest Accumulation Portfolio cannot be directly reallocated to the Vanguard Short-Term Inflation-Protected Bond Index Option, Fifth Third 529 Savings Account Option or the Fifth Third 529 CD Option. Before an account owner may direct the transfer of assets in an Account from the Interest Accumulation Portfolio to the Vanguard Short-Term Inflation-Protected Bond Index Option, Fifth Third 529 Certificate of Deposit or the Fifth Third 529 Savings Account, or any other competing investment option that may later be added to Ohio’s 529 Plan, the account owner must first direct the transfer to an investment option, other than a competing investment option, for at least 90 days. After 90 days, the account owner may then instruct Ohio’s 529 Plan to transfer the applicable amount to the Vanguard Short-Term Inflation-Protected Bond Index Option, Fifth Third 529 Certificate of Deposit or the Fifth Third 529 Savings Account, or any other competing investment option. Account owners should note that moving allocations from the Interest Accumulation Portfolio to a noncompeting investment option for at least 90 days, and then to the desired competing investment option, will each count toward the limited number of times an account owner is permitted to direct changes in investment options for an account within a calendar year. Additional investment options could be restricted in the future, if the Ohio Tuition Trust Authority (OTTA) Investment Board votes to add additional competing investment options to the Direct Plan.
These changes will be reflected effective Oct. 23, 2020, in a Supplement to the Direct Plan Offering Statement And Participation Agreement Dated May 18, 2018. The new Supplement can be found at CollegeAdvantage.com.
Ohio Tuition Trust Authority remains committed to providing quick, friendly, and professional customer service through our Columbus, Ohio-based customer service representatives. If you have any questions or concerns about the upcoming changes, or if you need information or assistance with your account, please call CollegeAdvantage at 1-800-AFFORD-IT (233-6734). Our customer service representatives are available to assist you from 8:30 a.m. - 6 p.m. ET Monday through Friday. You may also send your non-account specific questions at your convenience via email to CustomerService@CollegeAdvantage.com
Posted on October 19, 2020