In a move the Vanguard Group said would fix a long-running inequity among retirement plans, the House Financial Services Committee approved a bipartisan bill that would allow 403(b) plans to offer collective investment trusts and other unregistered insurance company separate accounts.
The Retirement Fairness for Charities and Educational Institutions Act of 2023 was approved May 25 and now moves to the House for possible debate and a vote.
"This bipartisan bill will put millions of teachers, hospital workers, clergy, and non-profit employees participating in 403(b) retirement plans on a level playing field with all other retirement savers,” Paul Richman, chief government and political affairs officer, said.
Sponsored by Rep. Frank Lucas (R-Okla.), the bill would amend federal securities law to authorize the use of CITs and unregistered insurance company separate accounts within 403(b) plans, as they are already authorized to be used within 401(k) plans.
The bill gives "educators, and other employees of non-profits and schools ... access to the same low-cost investment vehicles, such as collective investment trusts, as their counterparts in other retirement plans,” John James, head of Vanguard Group's institutional investor group, said in a statement.
"Vanguard commends the bipartisan efforts to create parity across the retirement savings system, which will ultimately improve Americans' ability to save towards a secure retirement,” James added.
While CIT—pooled investments offered by banks and trust companies are already available to other types of defined contribution plans and some 403(b) church plans, Congress was unable to agree to make the trusts available industry-wide to 403(b) plans when they debated SECURE 2.0, the comprehensive retirement security enhancement legislation passed by lawmakers last December.
Because CITs are unregistered securities, regulated by Office of the Comptroller of the Currency and state banking regulators instead of the Securities and Exchange Commission, the amendment to the law is necessary to make the investments more widely available in 403(b) plans.
The legislation will give 403(b) plan participants “a choice of more robust investment lineups consisting of lower-cost options that preserve principal and provide protected guaranteed lifetime income,” Richman added.