Bill to Allow CITs in 403(b) Plans Introduced in Senate

A bipartisan group of U.S. senators have introduced a bill that would allow 403(b) plans to include collective investment trusts, a generally lower-cost investment option available in other defined contribution plans, including 401(k)s.  

The bill, S. 4917, was introduced by Senator Katie Britt, R-Alabama, and co-sponsored by Senators Gary Peters, D-Michigan; Bill Cassidy, R-Louisiana; and Raphael Warnock, D-Georgia.  

Since being introduced, the bill was read twice and referred to the Committee on Banking, Housing and Urban Affairs. The text of the bill has not yet been released publicly.  

Kendra Isaacson, a principal at public policy consultancy Mindset and a former counsel for the Senate Committee on Health, Education, Labor and Pensions, says she is hopeful the bill will pass and expects it to advance by the end of the year.  

“Participants in 403(b)s should enjoy the same low-cost options that participants in 401(k)s have,” she says. 

The introduction of the bill in the Senate follows the passage of a similar bill, the Retirement Fairness for Charities and Education Institutions Act, in the House of Representatives on March 8 as an amendment to H.R. 2799. That bill was passed easily by a vote of 301 to 125, and a section on the enhancement of 403(b) plans included language that would “amend federal securities laws to allow 403(b) plans to invest in CITs and insurance contracts that currently may be invested in by comparable retirement plans, such as 401(k)s.” 

The House bill was proposed by Representatives Frank Lucas, R-Oklahoma; Josh Gottheimer, D-New Jersey; and Bill Foster, D-Illinois. Lucas had argued that 403(b) plans, often used by nonprofits such as schools and charitable organizations, are at a disadvantage as compared with other DC plans because they do not have access to CITs. On March 11, the Senate received the House bill and referred it to the Committee on Banking, Housing and Urban Affairs. 

The SECURE 2.0 Act of 2022 amended Internal Revenue Code Section 403(b) to allow 403(b) plans with custodial accounts to invest in CITs. However, in order for CITs to be a permissible investment for 403(b) plans, securities laws need to be amended as well, according to Groom Law Group.  

Many in the retirement industry have pushed for allowing 403(b) plans to invest in CITs, as they can be cheaper and more flexible than mutual funds, in part because the instruments are not securities and do not need to be registered with the Securities and Exchange Commission. Instead, CITs are considered a bank product and regulated by the Office of the Comptroller of the Currency.  

CITs can also hold a larger percentage of illiquid assets, such as restricted private equity interests or commercial real estate assets, than can a mutual fund. This can make CITs more attractive to longer-term investors who do not need the daily valuations and redemptions available in mutual funds.