The State of Illinois Picks Bad Mutual Funds For Its' 529 Program

Morningstar reports:

Not too long ago, the state of Illinois made room for brokers under its 529 umbrella by providing options that carry a commission. I like the idea of having both no-load and load options in 529 plans.
So, let’s see: Illinois has made room for high-powered banks (Citigroup C), elected officials (the state collects fees on 529s), and brokers. I guess that covers everyone. Oh wait, Illinois forgot about the children (and their parents) who hope to pay for college one day with their 529 savings.

In searching for a firm to run its 529 plan, Illinois passed up firms with low costs and great performance, such as Vanguard, American, and T. Rowe Price, in favor of Citigroup and its lineup of bland funds. Maybe Illinois’ elected officials felt that C students in the state would be intimidated by all that accomplishment, so it opted for a mediocre underachiever.

At this point, what Illinois did would be disappointing but no worse than a bunch of states. But Illinois must have known that its 529 plan couldn’t compete with the likes of Utah and Virginia, which had lower costs and better shops (Vanguard and American, respectively). So, Illinois walled off access to all other states’ 529 plans by denying tax breaks to anyone choosing another state’s plan. It even went so far as to tax Illinois residents on withdrawals from 529 plans offered by other states.

This kind of reminds me of the way banana republics behave when they decide their local industries can’t compete with the rest of the world--they erect big trade barriers to protect them. Of course, it may hurt consumers and other businesses in those countries, but it does protect the local champions' turf.

Amazing isn't it.Makes you feel warm and fuzzy that these corrupt government officials can run things like this.The government has no place being involved in education.