Senators have introduced bill S.4917 to allow the use of Collective Investment Trusts (CITs) in 403(b) plans. This mirrors the bill previously approved by the U.S. House of Representatives in March. CITs, in general, are pooled investment vehicles organized as trusts and maintained by a bank or trust company. CITs generally offer lower-cost investment menu options that were previously only allowed in 401(k) and defined benefit plans.
The legislation seeks to complete what was started in the SECURE 2.0 Act of 2022 that would allow 403(b) plans subject to the Employment Retirement Income Securities Act of 1974 (ERISA) and governmental plans to invest in CITs. SECURE 2.0 included legislation to allow 403(b) plans to use CITs but did not include the necessary changes for the Office of the Comptroller of the Currency (OCC) and state banking regulators to oversee the CITs. CITs are not registered with the Securities and Exchange Commission, which helps reduce fees for them. Many in the retirement industry had pushed for a change to allow 403(b) plans to invest in CITs post-SECURE 2.0. Should the bill be passed in the Senate, this would bring the provision to fruition to complete Section 128 of SECURE 2.0.
The growth in popularity for CITs is not surprising, given consultant familiarity, pricing flexibility, daily valuation, improved reporting, and transparency. It makes sense to expand this availability already offered in 401(k) plans to 403(b) and governmental plans. One of the benefits of offering CITs is the lower cost, especially in the era with an increased focus on investment fees. Some of the risks plan sponsors will have to consider are the threshold of assets within a plan to be able to use CITs within an investment menu, liquidity of the product, and the extensive trust paperwork involved in setting up the CIT for the retirement plan. Should this bill pass, we anticipate increased adoption within 403(b) and governmental plans.
Multnomah Group will continue to monitor this legislation and its potential impact on 403(b) retirement plans.
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