Senator Joe Pennacchio, a member of the Senate Budget and Appropriations Committee, issued the following statement after he questioned an official at budget hearings yesterday about NJBest, a so-called 529 plan created by the state for parents trying to save so they can afford the ever increasing cost of a college education for their children. Morningstar rated New Jersey’s 529 plan as among the worst five in the nation.
“Morningstar tells us that the fees for the NJBest plan are much, much higher than the fees charged by Ohio’s college savings fund, which ranks as one of the best five,” Pennacchio said. “I also was disturbed to learn that Morningstar believes this plan puts parents in risky stock investments far longer than is prudent for college savings funds.”
Pennacchio said he just learned the state’s 529 funds are run by Franklin Templeton, where Peter Langerman, the former head of the state Division of Investment went back to work in 2005. Langerman was an executive at Franklin before being named head of the New Jersey Division of Investment in 2002. In 2003, Franklin won the contract to run the state 529 plans, records indicate. Langerman left to rejoin Franklin in 2005. According to Morningstar, he manages mutual funds where some of New Jersey’s 529 money is invested today.
“These facts are troubling. Langerman is known as great investment manager, but the state’s awarding of the contract to Franklin raises obvious concerns. The public has a right to be suspicious of potential conflicts of interest, particularly when an independent company says parents are paying fees much higher than those charged in other states.
“This 529 ranking also comes amid news reports that former U.S. Senator Robert Torricelli worked for a firm that is at the center of an influence-peddling scandal involving investments in New York state pension funds. Possible conflicts of interest such as the above and a total absence of transparency surrounding the state’s disastrous investment in Lehman Brothers in June have led Senator Bill Baroni and I to draft legislation that will create a Senate commission on pensions. If passed, the commission will hold hearings on state management of pensions for public employees. I will add the state’s 529 plans to the list of topics for discussion if this bipartisan commission is created. I’ve asked for subpoena power to ensure an honest and thorough inquiry.”