Congressman Again Pushes for Expanding Investment Options in 403(b)s

A lack of access to the same investment types allowed in other DC plans means 403(b) plan participants are missing out on increased retirement savings, industry sources say.

Congressman Jimmy Panetta, D-California, has re-introduced the Public Service Retirement Fairness Act, a bill that would allow collective investment trusts (CITs) as investment options in 403(b) plans.

The bill was first introduced last March and was referred to the House Committee on Financial Services and the House Committee on Ways and Means, but nothing has come of it since.

CITs are collectively managed investment vehicles that typically have lower costs and more flexibility than annuity contracts and mutual funds—the only types of investments allowed in 403(b) plans. With excessive fee lawsuits extending to the 403(b) space and account assets growing larger with time, 403(b) plan sponsors have been inquiring about offering CITs on their plan menu.

The Public Service Retirement Fairness Act seeks to amend Internal Revenue Code (IRC) Section 403(b) to permit inclusion of CITs as investment vehicles in 403(b) retirement plans. The bill also calls for corresponding changes to the Investment Company Act of 1940, the Securities Act of 1933 and the Securities Exchange Act of 1934, as well as adjustment to related rules and regulations covering CITs and separate accounts and regulations that otherwise restrict investments for CITs.

ICMA-RC, now MissionSquare Retirement, has expressed support for previously introduced bills that would allow CITs in 403(b)s and has been involved in its own advocacy efforts. It has also made an attempt to get a private letter ruling from the IRS about offering CITs in 403(b) plans as underlying investments in annuity contracts or other investment vehicles.

In a recent conversation with John James, managing director and head of Vanguard Institutional Investor Group (IIG), he reiterated Vanguard’s support for the legislation. He said the firm’s own calculations show that 403(b) plan participants could save as much as $250 million annually by investing in CITs.

With the reintroduction of Panetta’s legislation, the National Association of Government Defined Contribution Administrators (NAGDCA) announced its support for the bill. “Lack of access to the same breadth of investment structures long available to other types of public sector DC [defined contribution] plans is costing 403(b) plan participants—which include the nation’s 10 million teachers—potentially thousands of dollars in retirement savings due to higher investment expenses and reduced returns,” says NAGDCA Executive Director Matt Petersen.