Investing July 2, 2025

Pending Bill Brings CITs Closer to Reality for 403(b) Plans

Industry proponents expect the legislation would lower costs and broaden investment menus for sponsors and participants.

Reported by

Elizabeth Harris

Art by Margherita Caspani

At MissionSquare, Andre Robinson and his team are preparing for when 403(b) retirement plans can consider collective investment trusts in their portfolio lineups.

Robinson, MissionSquare’s CEO and president, sees support building for legislation that will allow nonprofit workers to have the same choices that 401(k) plans offer regarding collective investment trusts, or CITs.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news. 

“There is excitement, but again, that doesn’t mean that this is going to happen, we just feel that after years of inertia around this topic and the fact that it’s starting to gain momentum, there is some hopeful upside here,” says Robinson, whose main office is in Washington, D.C.

CITs have been available to 401(k) plans and other retirement plans, such as 457 plans, for some time. But the Retirement Fairness for Charities and Educational Institutions Act of 2025, H.R. 1013, introduced by Representative Frank Lucas, R-Oklahoma, earlier this year is meant to create parity between 401(k) and 403(b) plans in permitting nonprofit employees to invest in CITs which some expect to offer both greater savings and the potential for more investment options.

Jason Key, head of consultant relations at TIAA anticipates that widespread adoption of CITs within 403(b) plans could both improve investment menu choices and reduce investment management fees. CITs, which are bank products rather than securities, are created exclusively for institutional investors, which eliminates specific marketing, distribution and compliance costs. And Key, based in Charlotte, North Carolina, estimates those savings could result in a 10% or more overall reduction in investment management fees paid by plan participants. He also sees how some institutional investment solutions designed for the employer-plan market may be better suited for distribution in a CIT structure, rather than a mutual fund and is watching how some new investment offerings developed only as CITs. For instance, he notes that recent Target Date Funds developed with guaranteed lifetime income are CITs and therefore currently unavailable to 403(b) plans.

“We believe that 403(b) plan menus—and individual participant outcomes—can meaningfully benefit from access to this broader universe of attractively priced CIT solutions,” according to Key, who responded to questions by email.

Structurally, CITs are regulated under Employee Retirement Income Security Act , rather than by the Securities and Exchange Commission, as mutual funds are. But Michael Kreps, a principal with Groom Law Group based in Washington, D.C., believes ERISA offers investors greater protections than do securities laws given that ERISA imposes an uncapped personal fiduciary liability on those who manage the assets as well as what he describes as Draconian conflict of interest rules while also being overseen by multiple regulators.

“I realize it’s a different legal regime, but in a lot of respects, it’s a stronger, more regulated legal regime.” Kreps says. “So, from a consumer protection perspective, I’d rather have people in CITs.”

Kreps also considers the fact that CITs are not included in 403(b) plan design as more of a historical artifact than an intentional plan. He traces it back to when 403(b) plans developed in the early 20^th century, they were individualized contracts that benefitted, for instance, a teacher by providing retirement security especially for people who moved jobs. That changed over the years as 403(b) plans plans became more institutionalized and subject to ERISA and began resembling 401(k) plans, he says.

“The difference between a 403(b) plan and a 401(k) plan in terms of governance and oversight, it’s just not that big anymore – they’re very similar,” Kreps says. “So, the fact that they’re shut out from lower-cost investment options doesn’t make a whole lot of sense.”

Shalina Schaefer, a partner with Ice Miller based in Indianapolis, also sees advantages in 403(b) plans resembling 401(k) plans even more than they do now.

“For many years, Congress and the IRS have made changes to align 403(b) plan rules with 401(k) plan rules, so that both types of plans operate very similarly,” she said in a written response to questions. “While the option for 403(b) plans to invest in CITs would further that alignment, in the meantime, 403(b) plans continue to offer tax-advantaged retirement savings opportunities that are very popular with tax-exempt and public employers and their employees.”

Some, like Robinson at MissionSquare are already considering what the potential legislative changes could usher in. MissionSquare currently has more 401(a) and 457 plans on its books as well as some 403(b) plans, but Robinson expects the new legislation will accelerate the 403(b) plan development. He points to a broader array of investment options beyond what’s currently available to 403(b) plan participants. “That’s going to be the benefit,” Robinson says. “One example is we have a diversifying strategies fund that is comprised of private equity, private credit and private assets and we’ve been building solutions around that for some of our existing 457 clients.” Over time, Robinson has observed that the portfolios that devote a small allocation to private equity, tend to outperform.