The Landscape Around CITs Has Changed. It’s Time for Workers in 403(b) Plans to Benefit.

Lisa M. Gomez

Millions of nonprofit and public sector workers are missing out on retirement savings opportunities—not because of anything they did, but because of a decades-old legal exclusion that no longer reflects the realities of today’s retirement system.

Approximately 14.5 million workers—public school teachers, hospital employees, social workers, university staff—participate in 403(b) retirement plans that are legally barred from investing in collective investment trusts. Their counterparts in 401(k)s, 457(b)s and even the Federal Thrift Savings Plan (which covers members of Congress and federal employees) have had access to lower-fee CITs for decades.

The Retirement Fairness for Charities and Educational Institutions Act would change that, by allowing 403(b) plans access to CITs, as long as there is a fiduciary responsible for selecting and overseeing the plan’s investment lineup and the act’s other requirements are satisfied. The bill has broad bipartisan support, and the policy case for it is strong.

Some thoughtful observers have raised concerns about whether the regulatory and transparency frameworks governing CITs are sufficient to protect 403(b) participants, particularly those in plans not governed by the Employee Retirement Income Security Act. Those concerns were understandable when 403(b) plan investments were mostly sold on a retail basis, directly from insurers to individual plan participants. But today, most 403(b) plans have investment lineups managed by employers or other responsible decisionmakers and are functionally no different from ERISA-governed 401(k) plans. The proposed legislation would make CITs available to such 403(b) plans.

As someone who spent years administering the federal regulatory framework governing ERISA plans as assistant secretary of labor, I want to walk through where those concerns came from and why the current landscape looks meaningfully different, as 403(b) plan design evolution, improvements in the regulatory environment, and the defined contribution system itself have addressed those concerns.

Before turning to those changes, I want to explain why this matters to workers looking to make the most out of their retirement savings—and to those seeking to help them get there.

What the Defined Contribution System Has Already Learned

Putting the regulatory debate aside for a moment, decades of fiduciary decisionmaking have demonstrated that defined contribution plan fiduciaries have chosen CITs when they offer the same or substantially similar investment strategies at lower cost. According to Morningstar’s “2026 Retirement Plan Landscape Report,” the average actively managed mutual fund costs approximately three times more than its CIT counterpart. For passively managed funds, the differential is even wider: roughly 4.4 times more expensive. Over a career spanning several decades, those savings can compound into a meaningful increase in retirement assets, helping workers keep more of their investment returns and strengthening their financial security in retirement.

Consider a public school teacher earning $65,000 per year who contributes 5% of their salary with a 3% employer match—$5,200 annually—to their 403(b) account. Assuming a 9% annual return on that money over a 30-year career, the difference in fees on their 403(b) plan investments determines how much of that growth they actually keep.

In an actively managed fund, the difference between a typical mutual fund expense ratio and its CIT counterpart translates to roughly $55,300 more at retirement in the CIT—money that compounds silently in the background, year after year, simply because the vehicle costs less. For passively managed strategies, where the fee gap is even wider but fees are lower, the difference is approximately $7,800.

To be clear: same investment strategy, same contributions, same market returns—the only variable is the cost of the vehicle. That is what is at stake for 14.5 million workers who currently have no access to CITs.

Responsible plan fiduciaries have acted on this. The largest 401(k) plans have been migrating to CITs from mutual funds for more than a decade, and CITs now hold more defined contribution plan assets than do mutual funds. The straightforward recognition that lower fees mean more money compounding in participants’ accounts over their careers has driven this shift. Over a 30- or 40-year working career, that difference is material.

Employer-managed 403(b) plans eligible to access CITs under the proposed legislation and their participants deserve the opportunity to make the same choice. The regulatory framework exists to support it, and the market infrastructure exists to deliver it. The remaining barrier is a legal classification rooted in how 403(b) plans were structured decades ago, not how they operate today.

What Are CITs and What Has Changed?

CITs are pooled investment vehicles maintained by bank or trust company trustees, used primarily by institutional retirement plans. They are not offered directly to retail investors, and, as a result, they operate outside the mutual fund registration framework established by the Investment Company Act of 1940. Instead, they function within a regulatory structure grounded in banking oversight, which predates the current securities laws and mutual fund regime.

Early caution of CITs in 403(b)s was reasonable not because CITs were poorly regulated, but because the surrounding infrastructure had not yet caught up. For most of their history, 403(b) plans were insurance-style products marketed directly to individual teachers, nurses, and nonprofit workers—retail investors—with little of the centralized oversight of the fiduciary-driven structure that characterizes 401(k) plans.

CITs, on the other hand, were built for exactly that kind of centralized, institutional oversight, with a fiduciary selecting and monitoring the investment lineup on participants’ behalf. That model does not work without an employer or plan sponsor positioned to do the selecting and monitoring. Retail-structured 403(b) plans did not yet have that role built in, so the CIT vehicle and the plan structure were, for a time, genuinely mismatched. Questions about oversight, comparability and participant access to information in CITs were legitimate and, at the time, not fully resolved.

What has changed since then is not the core structure of CITs, but the surrounding system. Recordkeepers built the platform capability to offer CITs alongside mutual funds on the same participant-facing systems, with the same daily valuation and the same fee disclosure. Independent data providers track and benchmark CITs, giving plan sponsors and advisers the comparative tools that once existed only for registered mutual funds. Consultants developed due diligence processes to evaluate CITs on equal footing with other investment options. The market built the necessary operational infrastructure for review of CITs. For 403(b) plans that are  ERISA-covered, that infrastructure is reinforced by a further layer—ERISA’s disclosure requirements at the plan and participant level require the same fee disclosures, performance reporting and benchmarking information for CITs as for mutual funds.

The concern over whether 403(b) participants would have meaningful visibility into their CIT investments—the kind of transparency that mutual fund investors have come to expect and receive through prospectuses, SEC filings and standardized reporting—does not reflect today’s CIT market. Today, a 403(b) participant invested in a CIT would see the same fact sheet, the same daily valuation and the same fee disclosure on their recordkeeper’s portal as they would for any mutual fund. That was not always true, but it is now, and that matters. Morningstar tracks more than 7,800 CITs, providing the kind of independent reporting that gives participants and advisers meaningful comparative tools.

The transparency concern reflected an earlier version of the market, when 403(b) plans operated like retail insurance products. Today, with employer-managed structures, standardized disclosures and industry-wide data, the transparency gap is effectively closed. The mismatch described above—an institutional vehicle without institutional infrastructure—no longer exists.

Sufficient Regulatory Oversight?

Concerns about whether CIT regulation is appropriately tailored to 403(b)s are understandable, given the historical context of retail investment products in the 403(b) marketplace. Mutual funds operate under the familiar registration framework established by the Investment Company Act of 1940, which has long served as the benchmark for retail investor protection. Since CITs are exempt from that registration requirement, some assume they are subject to little—or weaker—regulatory oversight.

But that assumption overlooks that instead of relying primarily on a single registration statute, participant protections under CITs come from multiple legal and regulatory frameworks, including trustees subject to federal or state banking regulation and fiduciary common law; anti-fraud provisions of the Securities Act of 1933; group trust tax law requirements for maintaining tax-exempt status; plan-level oversight; and ERISA’s fiduciary structure.

Because CITs can only be offered to institutional retirement plans, most CIT assets come from ERISA-covered plans, which means ERISA’s full fiduciary framework attaches. Under ERISA, the CIT’s trustee and investment managers are held to fiduciary duties of prudence and loyalty, strict prohibited transaction rules and comprehensive fee disclosure requirements. Even in the limited cases in which ERISA does not apply, the other protective frameworks outlined above remain in force.

It is worth noting that when an ERISA plan invests in a mutual fund, the mutual fund manager is not, itself, subject to ERISA’s fiduciary obligations. The mutual fund’s assets are not ERISA plan assets. CITs with ERISA plan assets, by contrast, bring their investment managers directly within ERISA’s reach.

So the question is not whether CITs are regulated like mutual funds—it is whether they are appropriately regulated for retirement plans. Not only is the answer yes, but in many respects, retirement plan regulatory protections are stronger for CITs than the mutual fund framework.

The bill reinforces those protections structurally. By limiting CIT access to employer-managed 403(b) plans with centralized oversight and curated investment lineups, it ensures that a responsible decisionmaker stands between the participant and investment selection. This governance model mirrors the decisionmaking structure of ERISA plans. In that sense, the bill does not rely solely on ERISA protections; it builds a framework in which a comparable fiduciary framework exists, even where ERISA does not apply.

Broader Quality Concerns in the 403(b) Market?

Perhaps the most substantive concern raised by thoughtful observers is this: Some 403(b) plans—particularly older, individually structured arrangements that came before modern, employer-sponsored plan design—have documented quality problems. A Government Accountability Office report flagged investment fees exceeding 2% in some of these plans, and those findings deserve serious attention.

The instinct behind this concern is right: If parts of the 403(b) market have governance weaknesses, it is worth asking whether expanding the investment menu addresses the right problem.

The bill’s drafters took this seriously, which is why it is carefully scoped. Access to CITs would be limited generally to employer-managed plans with curated investment lineups—precisely the plans that function like 401(k)s and already have the governance infrastructure to evaluate and monitor institutional investment vehicles. The individually structured arrangements that raised the GAO’s concerns are not eligible under the bill’s terms.

That scoping does not resolve all the quality concerns in the 403(b) market, and those concerns merit their own legislative and regulatory attention. But the legitimate worries about plan governance have already been addressed by the bill’s design.

It’s Time to Act

The concerns that have slowed this legislation reflect genuine care for participant protection—the same goal the bill itself serves. Those concerns were shaped by an earlier regulatory and market landscape, one that has been substantially improved by DOL rulemaking, market development and years of experience with CITs across virtually every other type of workplace retirement plan.

Policymakers who have held back out of caution should find in the current framework the assurance they were looking for—the oversight framework is in place, the transparency requirements apply regardless of vehicle type, and the bill is carefully scoped to reach exactly the plans that are ready for this.

Teachers, hospital workers, and nonprofit employees have waited long enough. Passing the Retirement Fairness for Charities and Educational Institutions Act is the right call. At this point, delay is not caution; it is money coming out of workers’ pockets.

Lisa M. Gomez is the founder of LMG Collaborative Consulting Solutions and a former Senate-confirmed assistant secretary of labor for the Employee Benefits Security Administration.

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of ISS STOXX or its affiliates.