CIT Legislation Advances in U.S. House of Representatives

June 5, 2025

A bill to permit governmental 403(b) plans to invest in collective investment trusts (CITs) was approved by the House Financial Services Committee on May 20, 2025. NCTR as well as the National Association of Government Defined Contribution Administrators (NAGDCA) supports the legislation, which would allow teachers’ 403(b) plans to include CITs as part of their investment menu options. However, some objections were raised, and an unsuccessful effort was made to limit access to only plans subject to the Employee Retirement Income Security Act (ERISA).

A CIT is a tax-exempt investment fund made up of accounts held by a bank or trust company, pooled together to form a single larger diversified portfolio offering a variety of investment options and managed according to a defined investment strategy. While similar in structure to mutual funds, CITs are not securities regulated by the Securities and Exchange Commission (SEC) but are instead bank products, operated instead under the regulatory authority of the U.S. Office of the Comptroller of the Currency (OCC) — a federal banking agency in the U.S. Treasury Department — or state banking regulators.

Furthermore, CITs are only available to certain investors, such as retirement plans and institutional investors, and are not offered to the general public. Thus, when a participant is considering rolling their money over into an IRA, they usually have the option to keep their current mutual funds, but CITs cannot be rolled over into individual IRA’s.

Finally, CITs are typically less expensive to manage and administer than mutual funds, due in large part to the differences in regulatory oversight which can result in fewer burdensome reporting requirements than those that are imposed by the SEC on securities. Also, since CITs are not retail products as are mutual funds, they also usually have lower marketing and distribution costs. These all result in lower operational costs, producing lower fees for plan participants, and creating the potential for higher returns compared to mutual funds.

In fact, Morningstar — an influential financial services firm headquartered in Chicago that provides investment research and investment management services – reported in April that CITs are now more popular in DC plans than mutual funds, with CIT assets reaching $3.25 trillion in 2023 vs. mutual fund assets of $3.1 trillion, according to the latest available data.

Why? The reason is “the potential cost savings” for CITs, said Lia Mitchell, senior analyst for policy research at Morningstar, in an interview with Pensions & Investments. “CITs are, on average, cheaper,” she said. She observed that the CIT growth is also a reflection of plan sponsors and participants having a greater understanding of CITs and the willingness for CIT providers to reduce minimum investment amounts than when these investments first reached the DC marketplace.

These are among the reasons why Congressmen Frank Lucas (R-OK), Josh Gottheimer (D-NJ), Bill Foster (D-IL), and Andy Barr (R-KY) introduced H.R. 1013, the “Retirement Fairness for Charities and Educational Institutions Act of 2025” in the House of Representatives earlier this year: to provide teachers and other public employees who use 403(b) plans as important supplements to their defined benefit (DB) plans with access to what is often a lower-cost supplemental savings option that is available to virtually all other employer-sponsored retirement plans. A companion bill has been introduced in the Senate (S. 424) by Senators Katie Britt (R-AL), Gary Peters (D-MI), Bill Cassidy (R-LA), and Raphael Warnock (D-GA).

[The “SECURE 2.0 Act of 2022” attempted to change this situation by amending the Internal Revenue Code (IRC) to explicitly allow 403(b) plans with custodial accounts to invest in CITs. However, that law did not also change the provisions of securities law that prohibit such investments in most cases. Therefore, the new Lucas/Britt legislation would amend the Investment Company Act of 1940, the Securities Act of 1933, and the Securities Act of 1934 to make the necessary changes to permit governmental 403(b) plans as well as those sponsored by other non-profit organizations, including public universities, hospitals, churches, and charities, to have access to such investment options.]

However, as NCTR noted when the new legislation was introduced and NCTR and NAGDCA officially endorsed it, governmental 403(b) plans have their critics. For example, as a 2023 report by the U.S. Government Accountability Office (GAO) pointed out, sponsors of government 403(b) plans are not subject to disclosures mandated by ERISA such as a fee comparison requirement. Also, while governmental 403(b) plans may be subject to state laws on disclosures, these can vary significantly. GAO therefore found that supplemental retirement savings accounts for teachers and non-profit workers “can sometimes be subject to excessive fees and limited oversight that could impact the amount retirees ultimately receive.” (For more information on NCTR’s support of CIT legislation, see the “NCTR FYI” for February 14, 2025, entitled “NCTR Supports CIT Legislation.”)

Even though the SEC indirectly regulates governmental 403(b) plans through its regulation of fee disclosure for some vehicles that are offered as retirement plan investment options, including variable annuity products and mutual funds, some members of Congress are concerned that the overall lack of federal regulation is problematic. Accordingly, during the Financial Services Committee’s mark-up of the legislation, “[w]hether non-ERISA 403(b) plans should have access to invest in collective investment trusts was a point of contention,” PLANSPONSOR reports.

Specifically, Congressman Stephen Lynch (D-MA) stressed that because not all 403(b) plans are covered by ERISA, the change in law would push “riskier investments” onto 403(b) plan participants. According to PLANSPONSOR, he argued that “the bill does not level the playing field for retirees, but rather for product providers trying to sell the CIT products.” Congresswoman Sylvia Garcia (D-TX) agreed with Lynch that the bill puts 403(b) plan participants at risk, as she said more than half of 403(b) plans are not covered by ERISA.

Garcia also underscored that the Committee had “not held a single hearing on this subject,” and urged a “detailed examination” into the products and practices that 401(k) plans use and follow, and “only after such serious inquiry should we offer [deregulating] 403(b) plans to be warranted.”

However, other Committee members defended the legislation, with Congresswoman Ann Wagner (R-MO) arguing that “it already requires an ERISA fiduciary, a state or local government entity, or an employer to take on fiduciary responsibility to oversee the plan,” thus “aligning the treatment of 403(b) plans with what already works for 401(k)s,” she said.

In addition, Congressman Lucas reiterated that nothing in the underlying bill mandated the inclusion of CITs in 403(b) plans but merely provided access to these products under the full discretion of 403(b) plan sponsors. He also stressed that “while CITs are not regulated by the SEC, the SEC would still regulate fraud and bring enforcement actions based on misleading information” and would have “full authority to regulate investment managers of these investments,” according to PLANSPONSOR’s reporting.

Nevertheless, Congressman Lynch proposed an amendment that would “create parity of protection for retirees in 403(b) plans as compared to 401(k) retirees” by allowing CITs and unregistered insurance-based products to be sold only to 403(b) plans that are subject to ERISA. However, his amendment was voted down by a vote of 23 yeas to 28 nays.

[It should also be noted that as was pointed out by Jason Levy, Senior Counsel of Trust and Administrative Services with CIT provider Great Gray Trust Company — in a recent interview with the National Association of Plan Advisors (NAPA) — CIT providers “operate our business in accordance with ERISA,” since CITs are only available to institutional retirement plans and “it’s virtually always the case that there is at least one ERISA investor in the CIT.”

“Meaning that as long as that’s the case, the CIT must be governed in accordance with ERISA,” NAPA points out.

“Great Gray and other investment managers are ERISA fiduciaries,” Levy underscores. “It seemed like the opposition was premised on a misconception that the bill harms participants in non-ERISA 403(b) plans because those participants don’t have ERISA protections. But in fact, the opposite is true,” he stressed.]

The House Financial Services Committee eventually reported the CIT bill out of Committee by a vote of 43 to 8, with 15 of the Committee’s 24 Democrats voting in favor of the measure. Floor action on the bill by the full House of Representatives is not yet scheduled, but it is assumed it will easily pass, after which it must then be taken up by the Senate.

Matt Petersen, NAGDCA’s Executive Director, said in a statement: “Governmental 403(b) plans offer those workers who are the backbone of our society—teachers, healthcare workers, and other public servants—access to increasingly important supplemental savings vital to their overall retirement security, and they deserve access to all options to help these retirement savings grow as much as possible.”

NCTR concurs. Supplemental savings are increasingly important, as Matt notes, to overall retirement security, and NCTR is happy to work with NAGDCA to advance that shared goal.