House Passes Legislative Package Allowing CITs in 403(b) Retirement Plans 

The House of Representatives voted 302 to 123 to approve a bill that bundles more than 20 committee-approved measures, among them a provision to allow 403(b) retirement plans to invest in collective investment trusts. 

The INVEST [Incentivizing New Ventures and Economic Strength Through Capital Formation] Act introduced by House Financial Services Committee Chair French Hill, R-Arkansas; Capital Markets Subcommittee Chair Ann Wagner, R-Missouri; Representative Gregory Meeks, D-New York; and Representative Josh Gottheimer, D-New Jersey, combines bipartisan bills, each designed to strengthen capital markets.  

The bill now moves to the Senate, and if it passes there, it will be sent to President Donald Trump for his signature. 

Although the bill mainly aims to strengthen public markets and ease restrictions on initial public offerings, it also contains a provision permitting CITs in 403(b) plans—a change the industry has long advocated. 

One proponent, Lynn Dudley, senior vice president of global retirement and compensation policy at the American Benefits Council, says the initiative aims to create parity between the kinds of investments 401(k) and 403(b) plans can offer. 

“Nobody has given us a good reason why people participating in 403(b) plans shouldn’t have the same investment choices—and the same pricing—available to 401(k) participants,” she says. “It’s a leveling of the playing field.” 

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. 

CITs are bank products regulated by the federal Office of the Comptroller of the Currency and state banking regulators, not securities regulated by the Securities and Exchange Commission. CITs generally offer lower fees than mutual funds, making them an increasingly attractive option in defined contribution retirement plans. 

A recent study by the Vanguard Group found that, for plans it administers, average mutual fund fees are more than double those of CITs: 16 basis points, as opposed to 7 bps. Among the largest plans—those exceeding $4 billion in assets—the fee gap grows to 11 bps. 

In August 2024, CITs surpassed mutual funds to hold the largest share of assets in target-date funds, according to Morningstar. 

“Lower investment expenses mean that participants end up having greater wealth accumulation,” says Beth Halberstadt, Aon’s U.S. defined contribution investments leader. “The less fees you pay, the more you get to keep. So we would anticipate that would allow their retirement benefit to grow at a faster rate, having a lesser fee to pay for their investment selection.” 

According to Halberstadt, the legislation would also benefit employers who offer both 401(k) plans and 403(b) plans, such as health care companies, because they could provide their plans with the same investment menus. 

“Offering two different investment funds—one plan has higher investment expenses than another plan—is not ideal as an employer,” she says. “This would really bring that parity, especially in the health care organizations that have those situations.”