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A 403(b) CIT ‘Fix’ Gets Closer to Happening

A bill that would allow 403(b)s to invest in collective investment trusts (CIT) could be headed for Congressional markup in the next few weeks.  

A draft of the bill, titled “The Retirement Fairness for Charities and Educational Institutions Act of 2023," is backed by House Financial Services Committee Member Rep. Frank D. Lucas (R-OK) and would amend federal securities laws to enhance 403(b) annuity plans in part by adding a CIT option.  

Provisions to accomplish that were included in the House version of what became the SECURE 2.0 Act of 2022 — but only part of that solution made it into the final bill. “Congress just didn’t have the bandwidth to settle that particular issue before the bill passed,” American Retirement (ARA) CEO Brian Graff says.  
He explained that there were two sticking points, a taxation portion and a financial services portion. Graff and the ARA were instrumental in informing members about and getting them to agree on the taxation portion of the issue as SECURE 2.0 developed, freeing Congress to then focus on the financial services aspect, which the Lucas bill now does. 

“Congressman Lucas believes public education and non-profit employees work tirelessly to serve our communities and should have access to the same financial products for their retirement-savings plans as their peers,” a spokesman for Congressman Lucas said. “The Retirement Fairness for Charities and Educational Institutions Act of 2023 would ensure public service employees have access to the same financial tools for their well-earned retirement-savings through their 403(b) retirement-savings plans.”

No Rationale


“There is no rational basis as to why CITs are not allowed in ERISA-covered 403(b) plans because of its bedrock fiduciary protections for participants,” Andrew Remo, ARA’s Director of Federal and State Legislative Affairs, says. “ARA strongly supports updating our securities laws to address this 403(b)-plan investment inequity.”  

Proponents argue that CITs typically have lower expenses when compared with their mutual fund counterparts due to lower administrative and regulatory requirements. Their structure also provides greater flexibility in customization to accommodate the needs of a particular plan. 

It’s a particular issue with 403(b)s, where plan participants of non-profit organizations — like public schools, universities, churches, and charities — might find themselves subject to fees and expenses higher than CITs might provide, something the new legislation is meant, in part, to address.  

“When I look at CITs in 403(b)s, first and foremost, I’ve never really understood there’s the ’40 Act requirement only with 403(b)s,” Matt Drummond, National Sales Director for Tax Exempt and IRA Solutions with Aspire Financial Services, a PCS Company, said. “Anytime you can create a product that benefits the end participant, cuts through some of the regulatory red tape, and really innovates in the marketplace is great for 403(b)s and 401(k)s.” 

While the issue and bill were scheduled for discussion during last week’s hearing, “A Roadmap for Growth: Reforms to Encourage Capital Formation and Investment Opportunities for All Americans,” from the House Subcommittee on Capital Markets, time expired before it could be raised.  

However, Graff and the ARA remain optimistic that a 403(b)/CIT “fix” will eventually transpire, given its level of bipartisan support.