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House OKs bill to let 403(b) plans invest in collective trusts 

  • Contributor
    Geoff Manville
    Partner, Law & Policy Group, Marsh People and Investments
  • Contributor
    Margaret Berger
    Partner, Law & Policy Group, Marsh People and Investments
  • Contributor
    Matthew Calloway
    Principal, Law & Policy Group, Marsh People and Investments

March 14, 2024

 

Bipartisan legislation to make securities law changes so 403(b) plans can offer collective investment trusts (CITs) passed the House on March 8 as part of a larger package of securities law reforms (HR 2799). The CIT-related changes appear in a section entitled the Retirement Fairness for Charities and Educational Institutions Act of 2024. While the outlook for Senate action on the measure is uncertain, supporters hope the changes will stick in any final securities legislation Congress might approve later this year.

Widely used by 401(k) plans, CITs are a type of pooled investment vehicle similar to mutual funds. Before enactment of the SECURE 2.0 Act of 2022 (Div. T of Pub. L. No. 117-328), neither the Internal Revenue Code (IRC) nor federal securities laws allowed 403(b) custodial accounts to offer CITs. The SECURE 2.0 Act amended the tax law, but Congress couldn’t agree on the changes to federal securities laws, so CITs are still unavailable to 403(b) plans for the time being.

The legislation would specifically amend relevant securities laws to permit 403(b) plans to invest in CITs if the plans are any of the following:

  • Subject to Title I of ERISA
  • Governmental plans in which a plan fiduciary, employer or person acting on behalf of the employer reviews and approves each investment offering
  • Sponsored by an employer that has agreed to serve as a fiduciary for selecting the plan’s investments

The bill would make similar securities law changes for 403(b) plan investments in unregistered insurance company separate accounts. However, the IRC’s investment restrictions for 403(b) custodial accounts would remain in place.

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