House Passes Bill Permitting Use of CITs by 403(b) Plans

The U.S. House of Representatives Friday passed H.R. 2799, the Expanding Access to Capital Act, a package of bills that has implications for a variety of investors, including certain retirement savers. It also would expand the definition of an accredited investor and the way certain companies access funding.

The bill passed along party lines in the House by a vote of 212 to 205. The bill now moves to the Senate. It is not clear when that chamber will consider it.

The vote advances an amendment approved by the House on Thursday that has been widely watched by the qualified retirement plan industry: it gives 403(b) plans managed under the Employee Retirement Income Security Act the authority to include collective investment trusts among their investments.

CITs, as they are known, are generally cheaper to offer in retirement plan menus than vehicles such as mutual funds in part because they are not securities and do not need to be registered with the Securities and Exchange Commission. CIT’s are available, and have become very popular in defined contribution plans including 401(k)s. The measure was brought forward by Representatives Frank Lucas, R-Oklahoma, Josh Gottheimer, D-New Jersey, and Bill Foster, D-Illinois.

Another provision of the bill directs the SEC to require the adoption of electronic disclosure rules that would allow certain registrants to send electronic disclosures to investors instead of paper disclosures. The amendment was proposed by Representative Bill Huizenga, R-Michigan.

Eric Pan, CEO of the Investment Company Institute, praised this provision as bringing “investment disclosures into the 21st century by allowing electronic delivery to become the default mechanism to deliver certain regulatory documents to investors.”

The bill includes other measures being closely watched by the investment community, including a provision that would add clients of registered advisers to the definition of accredited investors, giving them access to some unregistered securities, provided they do not invest more than 10% of their net worth or gross income into private securities.

Overall, the bill’s provisions are designed to reduce “various securities regulations applicable to certain companies, brokers, and advisors” and allow “more investors to invest in specified types of ventures,” according to the Congressional summary.

Other provisions include:

• Securities registration is not required for a sale of securities if the total amount of securities sold by the issuer in a 12-month period does not exceed $250,000;
• Certain issuers of securities regulated as emerging growth companies can continue operating under the regulations, including those related to reduced disclosures, for an additional period of time; and
• Raising the limit of total annual gross revenues under which issuers qualify as emerging growth companies to $1.5 billion.

The bill was sponsored by Representative Patrick McHenry, R-North Carolina, and chairman of the House Financial Services Committee.

“Across the country, entrepreneurs with a new idea or seeking to grow their business are struggling to access affordable capital,” McHenry wrote in a statement. “The Expanding Access to Capital Act addresses this and more by alleviating the unique challenges faced by job creators and their investors who live outside major financial hubs. This legislation builds on the success of the bipartisan JOBS Act of 2012 and will benefit Americans from all walks of life—whether they’re saving for retirement or launching a startup.”