The long and winding road to allowing CITs in 403(b) plans has taken a few more turns in the past eight days.
In that time:
• Some consumer advocacy groups have urged lawmakers to reject a bill that would—among other things—include a legislative “fix” of allowing 403(b) plan participants to invest in collective investment trusts (CITs) as 401(k), 457(b) and the federal government’s own Thrift Savings Plan participants can.
• Backers of CITs in 403(b)s—the American Retirement Association in particular—publicly countered arguments in the letter relating to 403(b)s in particular.
• Then today, ARA launched a grassroots website that can be used by 403(b) plan backers to contact Congress to advocate for the bill’s passage.
Here’s a closer look at recent developments in the long CIT’s in 403(b)s saga.
On Nov. 13, a handful of consumer advocacy groups sent a letter to Senate Banking Committee members urging them to reject the Empowering Main Street in America Act of 2024, a bill which contains a provision that would allow 403(b) plan participants to invest in CITs. The six groups—including the Consumer Federation of America—say the bill “would severely threaten the transparency, integrity, and accountability of U.S. securities markets, placing millions of investors at risk and undermining the broader economy.”
The letter claims the legislative package would cause harm in several key ways, including Section 205, Enhancement of 403(b) plans.
“This section would allow unregistered securities to be sold to 403(b) retirement plans, including those used by public school teachers,” the latter states. “By eliminating the SEC’s regulatory oversight, the bill would open the door to unregistered financial products with hidden risks and costs being sold to some of the most vulnerable retirement savers.”
Supporters of CITs in 403(b)s, including the American Retirement Association, quickly responded to the letter and challenged the assertions it made about 403(b)s in particular.
In an article posted to the NAPA website on Nov. 18, ARA countered that the bill would simply fix a quirk in the securities laws that unnecessarily restricts the types of investments that can be made in 403(b) plans. It continued to say that the letter fails to consider the numerous benefits of allowing CITs in 403(b)s, including lower CIT administration, marketing, and distribution costs when compared with mutual funds, which often result in significant cost savings for plan sponsors and participants.
“The groups on this letter flat-out got this one wrong,” ARA CEO Brian Graff said in the NAPA article. “Not only are CITs significantly regulated, they consistently offer investors substantially lower investment fees compared to mutual funds. That’s why plan fiduciaries have been advising employers to offer CITs in 401(k) plans covering tens of millions of workers.”
Then today, ARA announced a newly launched advocacy page with the tagline, “Let’s support those who support us,” with a call to action for retirement plan professionals, participants, and sponsors to make their voices heard by lawmakers.
The advocacy page includes several form letters available for nonprofit employees, supporters of nonprofit employees, educators, and healthcare workers to help push S. 4917, the Retirement Fairness for Charities and Educational Institutions Act, across the finish line before the end of the year.
That amendment—which would allow CITs in 403(b)s—was passed in the House back in March 2024 with strong bipartisan support, but remains stuck in the Senate after being introduced on Aug. 1 despite widespread bipartisan support and the backing of ARA and the Investment Company Institute.
“These professionally managed products help millions of Americans secure their financial future,” ICI President and CEO Eric J. Pan said in a statement at the time. “ICI hopes the Senate will join the House and swiftly pass this legislation so public sector and nonprofit employees participating in 403(b) plans can benefit from the same retirement saving products offered in 401(k)s.”
Swift passage has not occurred, and now supporters of the bill are pushing to make it happen before the end of the year.
“We continue to push the legislation that will allow 403(b) plans to offer CITs with the hope that will be included in a bill expected to pass before the end of the year,” Graff said in a post today on NAPA.net announcing the new advocacy web page. “To that end, we have launched a grassroots website that can be used by 403(b) plan advisors, sponsors and their employees. If you have colleagues, peers, clients, and employees who care about this issue, please send them the links to seamlessly contact Congress to advocate for the bill’s passage.”
The legislation seeks to complete what was started in the SECURE 2.0 that would allow 403(b) plans to invest in CITs. SECURE 2.0 included legislation to allow 403(b) plans to use CITs but did not include the necessary changes for the Office of the Comptroller of the Currency (OCC) and state banking regulators to oversee the CITs. Disagreement in the House Financial Services Committee over the securities aspect of the intended provision led to the final version of SECURE 2.0 including tax language addressing relevant sections of the Internal Revenue Code, but language concerning changes relevant to financial services was stripped out of it.
CITs are not registered with the SEC, which helps reduce fees for them. Many in the retirement industry have continued to push for the change, which would finally bring the provision to fruition to complete Section 128 of SECURE 2.0.
SEE ALSO:
• Bipartisan Bill to Allow CITs in 403(b)s Introduced in Senate
• CITs in 403(b)s Clears Another Hurdle