To Level the Retirement Playing Field, Expand CIT Access to 403(b) Plans

Andy Reed

Teachers, nurses and other public and nonprofit workers face a double disadvantage when it comes to saving for retirement. They often earn lower incomes than their for-profit counterparts and pay higher fees on their investments through workplace retirement plans. This is because 403(b) investment menus typically lack a key ingredient that is available to their 401(k) counterparts: collective investment trusts.

Vanguard’s research team analyzed investment fees in retirement plans covering more than 50 million participants. The cost gap that emerged appeared modest at first glance: Investments in 403(b) plans charge 0.41% on average, compared with 0.33% for 401(k) plans—a difference of 0.08%, or $8 for every $1,000 invested per year. But compound costs have profound consequences: Over a 40-year career, a nonprofit worker paying 8 basis points more in fees would have $23,000 less in retirement wealth. The words of Vanguard’s founder, Jack Bogle, ring true: “In investing, you get what you don’t pay for.”

To put this in context, imagine 65-year-old twins Mary and Sarah. They had the same job and salary, earning $74,000 annually as social workers. They saved for retirement at the same rate (11%, including employer contributions) over the same 40-year tenure. They both retired on their 65th birthday. But Mary worked at a for-profit company and paid lower fees on her retirement investments, while Sarah worked for a nonprofit and paid higher fees. Because of this, Sarah would retire with $23,000 less in savings—even though she did everything else the same. That does not seem fair.

Why do 403(b) participants pay more to invest for retirement? They typically cannot access collective investment trusts, which are available to 401(k) plans but unavailable to most 403(b) plans due to securities laws. CITs are generally comparable to mutual funds in terms of their composition and function but are less costly to administer. In Vanguard-administered plans, the average mutual fund fees are twice as high as the average CIT fees (0.16% vs. 0.07%), a cost gap of 0.09%. The gap widens to 0.11% for employees of large organizations (plans with at least $4 billion in assets). This underscores the disadvantage of nonprofit workers at larger employers, such as hospital systems, that should be able to secure better pricing. Rules that grant CIT access to for-profit workers but prohibit access to nonprofit workers as an option are neither fair nor logical.

The prescription to lower costs and enhance retirement readiness for nonprofit workers is simple: Allow CITs in 403(b) plans.

Vanguard supports passage of the bipartisan Retirement Fairness for Charities and Educational Institutions Act (S. 424/H.R. 1013, 119th Congress, 2025). We estimate that expanding CIT access to 403(b) participants would generate more than $500 million in retirement wealth each year.

Nonprofit workers already forgo higher wages to make a difference and help people learn, grow and heal. Like the majority of American workers, they face savings gaps that will require working longer or spending less in retirement. Why should they also pay higher costs in their retirement accounts? Granting the 10 million Americans in 403(b) plans access to low-cost investments would create parity in retirement savings options—regardless of where they work. Everyone, from nurses to nuns and principals to paramedics, deserves a better path to retirement.

Andy Reed is the head of behavioral economics research in Vanguard’s Investment Strategy Group. He leads a global team of behavioral scientists, cultivating insights and strategies to promote better choices for millions of investors.

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.

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