ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business.
A recent call with a financial advisor from New York dealt with a question on 403(b) plans and collective investment trusts (CITs). The advisor asked: “I’ve heard conflicting statements on whether SECURE 2.0 Act allows 403(b) plans to invest in collective investment trusts (CITs). Can you answer the question definitively?”
Highlights of Discussion
The ability for 403(b)s to invest in CITs is regulated by both the IRS under the tax code and the Securities Exchange Commission (SEC) under the Securities Act of 1933 (The ’33 Act), the Securities Exchange Act of 1934 and the Investment Company Act of 1940 (The ’40 Act). Section 128 of SECURE 2.0 Act of 2022 (SECURE 2.0) does amend the IRS’s Internal Revenue Code (IRC) to allow 403(b) plans to invest in CITs, effective Jan. 1, 2023 (see page 872 for Section 128).
However, Section 128 of SECURE 2.0, as enacted, does not, simultaneously, amend The ’33 Act [specifically, Section 3(a)(2)], the Securities Exchange Act of 1934 [specifically, Section 3(a)(12)(C)] and The ’40 Act [specifically, Section 3(c)(11)], to allow 403(b)s to have CITs. An earlier version of the provision (at that time Section 104) passed by the House of Representatives would have made conforming amendments across all governing sources. When the dust settled, only the language amending the IRC remained in the final version of the law signed on Dec. 29, 2022.
Conclusion
While amendments pursuant to SECURE 2.0 Act allow 403(b) plans to invest in CITs from the IRS’s perspective, SEC rules still prohibit such investing practices at this time.[1]
Any information provided is for informational purposes only. It cannot be used for the purposes of avoiding penalties and taxes. Consumers should consult with their tax advisor or attorney regarding their specific situation.
©2023, Retirement Learning Center, LLC. Used with permission.
[1] Exception: 403(b)(9) retirement income accounts offered by church plans are not subject to the investment restrictions of 403(b)s.
