Advocates for including more collective investment trusts in retirement plans are routinely frustrated at the lack of CIT awareness and utilization by the public and investment professionals alike.
Their lower costs, when compared with many of their mutual fund counterparts, would make for an obvious choice in a heightened fiduciary environment.
One cohort in desperate need of cheaper investment products are teachers and related school district employees, who are often saddled with annuities with high fees and expenses. But now a bill has been introduced to allow CITs to be included in 403(b) investment menus.
Congressman Jimmy Panetta, D-CA, introduced the bipartisan Public Service Retirement Fairness Act and notes “403(b) plans are similar to 401(k) plans offered in the private sector but they have a major drawback in that they cannot invest in Collective Investment Trusts (CITs).”
CITs are collectively managed investment vehicles that typically have lower costs and more flexibility than the types of annuity contracts and mutual funds that the 403(b) plans are limited to investing in.
“Due to compound interest, these higher fees add up over time, potentially costing teachers and other public-service oriented professionals thousands of dollars in retirement savings,” according to Panetta. “There is no reason why 403(b) defined-contribution plans cannot invest in CITs.”
“Teachers and other public-service-oriented employees deserve flexibility when it comes to investing in their retirement,” he added. “Our public servants on the Central Coast are not only limited in those types of investments, but they also must contend with a very high cost of living. We need to make sure we are doing all that we can to help strengthen their financial security, including their retirement savings.
The bill will “level the playing field for these employees, and others who have committed their careers to public service, potentially increasing their retirement savings by thousands of dollars.”
Popular support
The bill received support from several high-profile organizations and unions.
“The California State Teachers’ Retirement System commends Congressman Panetta and his colleagues for introducing the Public Service Retirement Fairness Act, which would give California’s more than 964,000 public school educators the ability to save more in their defined-contribution retirement plans,” Sandy Blair, Director, CalSTRS Retirement Readiness, said in a statement. “This bill would allow CalSTRS 403(b) plan to use collective investment trusts, giving public school employees access to the same lower-cost investment vehicles available to other state and local government employees.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
