Legislation supported by the American Retirement Association (ARA) that would allow 403(b) plans to invest in collective investment trusts (CIT) took a significant step forward in the House of Representatives.
In a markup vote late Wednesday, the House Financial Services Committee approved an amended version of the Retirement Fairness for Charities and Educational Institutions Act (H.R. 3063) by a vote of 35 to 12.
The bill, sponsored by Rep. Frank Lucas, R-Okla., would complete changes needed to the SECURE 2.0 Act by amending federal securities laws to enhance 403(b) plans in part by adding a CIT option. As such, it would amend the Exchange Act to allow 403(b) retirement plans to invest in unregistered insurance contracts and CITs that currently may be invested in by comparable retirement plans, such as 401(k) plans.
SECURE 2.0 amended the Internal Revenue Code to allow 403(b)s to invest in CITs, but changes needed under the securities law did not make it into the final bill when it was enacted this past December.
“On behalf of the over 35,000 members of the American Retirement Association (ARA), we hereby express our support for the Retirement Fairness for Charities and Educational Institutions Act of 2023. We commend you all for championing this important piece of bipartisan legislation,” ARA CEO Brian Graff wrote in a May 22 letter.
The ARA was instrumental in informing members about and getting them to agree on the taxation portion of the issue as SECURE 2.0 developed, freeing Congress to then focus on the financial services aspect, which the Lucas bill does.
Proponents argue that CITs typically have lower expenses when compared with their mutual fund counterparts due to lower administrative and regulatory requirements. Their structure also provides greater customization flexibility to accommodate a particular plan’s needs.
It’s a particular issue with 403(b)s, where plan participants of nonprofit organizations—like public schools, universities, churches, and charities—might find themselves subject to fees and expenses higher than CITs might provide, something the new legislation is meant, in part, to address.
“I’m very happy,” Rep. Lucas said of the vote, “but when you’re simply trying to bring equity amongst the various retirement fund options, this shouldn’t have been that hard. And I say that respectfully, but we looked at 401(k)s and what they’ve done in the last decade and what people can do with them, and 457(b)s and the Thrift Savings Plan, basically public servants are disadvantaged, and we were trying to address that.”
The vote was surprisingly bipartisan, Andrew Remo, Director of Federal & State Legislative Affairs for the American Retirement Association, said, especially given increasingly vocal opposition from certain Congressional members and public interest advocacy organizations like the Consumer Federation of America.
During consideration of H.R. 3063, an amendment was offered by Rep. Sylvia Garcia, D-Texas, to modify the bill specifying that only 403(b) plans that are subject to ERISA can invest in CITs, but the amendment was defeated 21 to 26 along party lines.
“We just want to put these public service employees—think of healthcare workers, teachers, nonprofit employees—we want to put them on the same footing with individuals who have 401(k) or 457(b) accounts, or for that matter, even the thrift savings plan program that members of Congress participate in,” Lucas said. “It’s good enough for us. It should be good enough for [them]. They should be treated equitably too.”
H.R. 3063 will now move to the full House of Representatives for consideration.
“This will be a part of a package of bills that will appear on the floor of the United States House over the course of the next, probably, couple of months,” Lucas concluded. “It will be freestanding there. I would expect it to clear the floor. And with 11 Democrats voting for the bill in committee, I would think there will be a substantial number of Democrats who vote on the floor of the House.”