Senate bill would let 403(b) plans invest in collective trusts 

August 9, 2024

Recently introduced bipartisan Senate legislation would change securities laws so 403(b) plans can offer collective investment trusts (CITs). The Retirement Fairness for Charities and Educational Institutions Act of 2024 (S 4917) is similar to bipartisan House legislation (HR 2799) passed in March as part of a larger package of securities law reforms. The outlook for Senate passage is uncertain, but supporters hope Congress might fold the changes into any larger “must-pass” bill 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. Although SECURE 2.0 Act amended tax laws, 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 the following types of 403(b) plans to invest in CITs:

• Plans subject to Title I of ERISA
• Certain governmental plans
• Plans 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 on 403(b) custodial accounts would remain in place.

The bill’s sponsors include Sens. Katie Britt, R-AL, Raphael Warnock, D-GA, Bill Cassidy, R-LA, and Gary Peters, D-MI. Britt and Warnock are members of the Senate Banking, Housing and Urban Affairs Committee where the bill was referred. Cassidy is ranking member of the Health, Education, Labor and Pensions Committee.

• S 4917, the Retirement Fairness for Charities and Educational Institutions Act of 2024 (Congress, July 31, 2024)
• HR 2799, the Expanding Access to Capital Act of 2023, Division F (Congress, March 11, 2024)
• Div. T of Pub. L. No. 117-328, the SECURE 2.0 Act (Congress, Dec. 29, 2022)

• User's guide to SECURE 2.0 (updated regularly)
• House OKs bill to let 403(b) plans invest in collective trusts (March 14, 2024)
• Viewing SECURE 2.0 through a 403(b) lens (May 22, 2023)