House Financial Services Committee Seeks Feedback on 403(b) Access to CITs

Following a hearing Wednesday by the U.S. House Financial Services Committee’s subcommittee on capital markets, the full committee is requesting feedback on various legislative proposals to increase investor access to private markets and facilitate capital formation, including a proposal that would allow 403(b) plans to invest in collective investment trusts.

In addition to asking about 403(b) plans’ use of CITs, the lawmakers requested comments on whether private asset classes should be more available to defined contribution plan investors.

The hearing, “The Future of American Capital,” was led by Subcommittee Chair Ann Wagner, R-Missouri, and examined the role of capital formation in driving economic growth.

One of the bills being examined by the committee is the Retirement Fairness for Charities and Educational Institutions Act, which would amend the Exchange Act to allow 403(b) plans to invest in unregistered insurance contracts and CITs that many 401(k) plans already use in their investment menus.

Identical versions of the Retirement Fairness for Charities and Educational Institutions Act were reintroduced in the House and Senate earlier this month. 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.

Chris Spence, managing director of federal government relations at TIAA, issued a statement to the committee, urging the members to increase nonprofit employees’ access to CIT investments.

“Public servants and those working for non-profit organizations have the right to a secure retirement and the same access to low-cost retirement savings investments as those employed in the for-profit sector,” Spence stated. “The bipartisan Retirement Fairness for Charities and Educational Institutions Act will remove outdated regulatory barriers, allowing 403(b) plan participants to benefit from collective investment trusts.

The committee’s request for feedback also asks members of the public to consider several questions regarding investor access to private markets and participation. The questions address retirement investment options, asking, “Should 401(k)s and other retirement vehicles have greater access to private markets, and what safe guards would be necessary?”

In addition to the discussion of access to private markets in defined contribution plans, Wagner also addressed the challenges associated with the “restrictive” definition of accredited investors, individuals earning at least $200,000 per year, according to the Securities and Exchange Commission.

“Expanding investment opportunities beyond the limited few who qualify under this narrow definition will unlock new sources of capital, benefiting both businesses and investors,” she said.

Anyone interested in providing feedback may send comments and responses to the questions outlined in the committee’s press release fsc119@mail.house.gov by March 31.

The full hearing can be viewed here.