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Following a push by the Senate Banking, Housing and Urban Affairs Committee to allow 403(b) plans to invest using collective investment trusts (CITs), six investor advocacy groups sent a letter to the committee, expressing that they “strongly oppose” the Empowering Main Street in America Act of 2024.
CITs are tax-exempt, pooled investment vehicles similar to mutual funds that are maintained by a bank or trust company exclusively for qualified plans, including 401(k)s and certain types of government plans. CITs and mutual funds account for 47% of all target-date strategy assets as of year-end 2022, according to Morningstar, which predicts CITs are on pace to overtake mutual funds as the most popular target-date vehicle in the next two years.
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In September, Sen. Tim Scott (R-SC), who is ranking member of the Senate Banking Committee, introduced the bill, which would expand 403(b) plan participants' investment options, so they have greater parity with those available in 401(k)s and other plans.
Many retirement industry leaders are in favor of a new bill that will allow 403(b) plans to invest using CITs, which typically have cost-effective fee structure. However, because some 403(b) plans are not governed by the Employee Retirement Income Security Act, the advocates believe removing Security and Exchange Commission’s regulatory oversight would put these plans and employees at further financial risk.
By eliminating the SEC’s oversight, the bill would “open the door to unregistered financial products with hidden risks and costs being sold to some of the most vulnerable retirement savers,” argued Americans for Financial Reform, Consumer Action, Consumer Federation of America, Institute for Agriculture and Trade Policy, Private Equity Stakeholder Project, and Public Citizen, in their letter.
Related: Collective investment trusts: Senate Committee introduces bill to allow CITs in 403(b) plans
The legislation follows unfinished business left over from the enactment of SECURE 2.0. "Earlier versions of SECURE 2.0 included the ability for 403(b) plans to use the same, low-cost, collective investment trust investment options that many 401(k) plans use today," said Chris Littlefield, president of Retirement and Income Solutions at the Prinicipal Financial Group.
However, the advocacy groups say the legislation “would harm retail investors, damage market integrity, destroy capital, and hamstring the SEC’s and state securities regulators’ ability to carry out their missions. Far from benefiting Main Street, this bill would only increase risks and losses for those who can least afford it,” read the letter.
The American Retirement Association and the Investment Company Institute have come out in support of Senator Scott’s bill.
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
