UESP Grows Into the 21st Century
Only five years old at the start of the new millennium, the Utah Educational Savings Plan (UESP) was about to enter a period of explosive growth that would propel it to the top of the 529 college savings plan industry.
Depending on who was viewing the numbers at the time, the signs that UESP was poised to get much bigger were—or weren’t—already evident. Between 1999 and 2000, assets under UESP’s management surged from $2.5 million to $19.3 million. The number of accounts jumped from 1,100 to 4,500.
Impressive as the gains were, the numbers were small. Yet they signaled that consumer acceptance of UESP was catching on.
In 2010, a decade later, UESP-managed assets stood at $3.8 billion in 172,200 accounts. Today, 20 years after the Utah Legislature established Utah’s official 529 plan in 1996, UESP assets total more than $8.7 billion in more than 300,000 accounts.
Key to understanding why UESP has grown to a size that proponents of a Utah 529 plan never envisaged in 1996 is the favorable response to UESP initiatives and innovations by investment experts and consumer writers. UESP’s strong performance brought priceless national exposure to UESP, said Edward Alter, who chairs UESP’s Investment Advisory Committee and was treasurer of the State of Utah when UESP was formed. “And we always got the highest rankings that were possible from any of those sources because of several factors,” he said.
The decision to offer passively managed, indexed investments that track the markets instead of actively managed mutual funds, which can do better or worse than the markets, showed UESP was different from most 529 plans. Alter said many rival plans started with actively managed mutual funds that underperformed the market and made the plans unappealing to investors.
Another choice that set UESP apart was to offer indexed investments managed by mutual fund giant Vanguard. “We were the second state to establish a relationship with Vanguard and to offer them as a 529 product. That kind of gave us a jumpstart on everybody,” Alter said.
Having the lowest possible fee structure was important, too. Because indexed funds run more or less mechanically, they are less expensive than actively managed mutual funds, which tend to be more expensive to manage on a daily basis. That means UESP account owners whose investment options include passively managed, indexed mutual funds may pay lower fees than those who invest in actively managed mutual funds.
“A low fee structure over time is one of the most important factors you can have, and so that was a big driving factor” in UESP’s growth, Alter said.