30 Retirement CEOs Back Senate Bill Permitting CITs in 403(b)s

A group of 30 retirement industry CEOs signed a joint letter to the Senate Committee on Banking, Housing, and Urban Affairs, urging the senators to pass a bill that would allow collective investment trusts to be used in 403(b) plans.

The letter comes as Congress is establishing final priorities before its month-long August recess and the upcoming midterm elections in November that will cloud the calendars of many members.

The letter was signed by a coalition of retirement industry leaders, including those from Vanguard, TIAA, Prudential, State Street Investment Management and Empower, and from other major financial organizations ranging from the American Benefits Council to the Insured Retirement Institute.

According to the firms, passing the legislation would provide 403(b) plans, whose participants include teachers, healthcare workers and nonprofit employees, fair access to low-cost institutional investments and lifetime income solutions.

The SECURE 2.0 Act of 2022 amended Internal Revenue Code Section 403(b) to allow 403(b) plans with custodial accounts to invest in CITs. However, for CITs to be a permissible investment for 403(b) plans, securities laws need to be amended as well. This measure makes that change, which many retirement experts say is overdue.

CITs are institutional-only pooled investment vehicles that do not register with the Securities and Exchange Commission. That allows them to charge lower fees and to offer more customized strategies than mutual funds. The lower costs and customization have made them increasingly popular among investors in 401(k) plans.

CITs made up 38% of 401(k) assets in 2023, according to a Cerulli Associates report.

“We don’t see why there shouldn’t be parity between what every other participant and every other type of retirement plan offers, including employees who are participating in the Thrift Savings Plan,” says Paul Richman, the IRI’s chief government and political affairs officer.

Challenges Remain

Despite the wide support for the provision from the retirement industry, the Invest [Incentivizing New Ventures and Economic Strength Through Capital Formation] Act, in which the provision lives, includes several clauses that are unpopular with Democrats.

Though the House of Representatives passed the bill in a largely bipartisan vote, Senator Elizabeth Warren, D-Massachusetts, signaled she would not support the bill because it would broaden investor access to private markets.

Legislative priorities could also pose a challenge. In addition to the upcoming recess and midterm elections, Congress is running low on time to pass the Clarity Act, which would create a regulatory framework for digital assets, and the SAVE America Act, the federal election bill that President Donald Trump has consistently pushed Republicans to pass.

Trump recently called attention to the bills in separate social media posts, saying they were both backed by the late Senator Lindsay Graham, R-South Carolina, who died Saturday.

The U.S. House Committee on Financial Services is holding a hearing on the Clarity Act on Friday.

Still, the CIT provision in the INVEST Act remains popular, meaning it could easily pass in a separate legislative package or if Congress compromises on the other provisions in the INVEST Act.

“This is an issue they shouldn’t forget about,” Richman says. “They should do everything they can to figure out how to get it across the finish line.”