New bills would allow 403(b) plans to invest in collective trusts 

Bipartisan legislation to change securities laws so 403(b) plans can offer collective investment trusts (CITs) has been reintroduced in the House and Senate. The Retirement Fairness for Charities and Educational Institutions Act of 2025 (HR 1013/S 424) is similar to bipartisan legislation passed by the House and introduced in the Senate in 2024. Supporters hope the changes will be folded into a larger legislative package that might see action this year.

Widely used by 401(k) plans, CITs are a type of pooled investment vehicle similar to mutual funds. Before enactment of the SECURE 2.0 Act of 2022 (Div. T of Pub. L. No. 117-328), neither the Internal Revenue Code (IRC) nor federal securities laws allowed 403(b) custodial accounts to offer CITs. The SECURE 2.0 Act amended the tax law, but Congress couldn’t agree on the changes to federal securities laws, so CITs are still unavailable to 403(b) plans for the time being.

The legislation would specifically amend relevant securities laws to permit the following types of 403(b) plans to invest in CITs:

• Plans subject to Title I of ERISA
• Governmental plans in which a plan fiduciary, employer or person acting on behalf of the employer reviews and approves each investment offering
• Plans sponsored by an employer that has agreed to serve as a fiduciary for selecting the plan’s investments

The bill would make similar securities law changes for 403(b) plan investments in unregistered insurance company separate accounts. However, the IRC’s investment restrictions on 403(b) custodial accounts would remain in place.

Supporters of the legislation, including Mercer, believe allowing 403(b) plans to invest in CITs would provide a significant benefit to plan participants by most likely reducing their expenses and providing them with the benefits of an ERISA fiduciary standard of care.

• HR 1013/S 424, the Retirement Fairness for Charities and Educational Institutions Act of 2025 (Congress, Feb. 6, 2025)
• News release (Rep. Frank Lucas, Congress, Feb. 6, 2025)
• News release (Sen. Katie Britt, Congress, Feb. 6, 2025)
• Div. T of Pub. L. No. 117-328, the SECURE 2.0 Act (Congress, Dec. 29, 2022)

• User's guide to SECURE 2.0 (updated regularly)
• Senate bill would let 403(b) plans invest in collective trusts (Aug. 9, 2024)
• House OKs bill to let 403(b) plans invest in collective trusts (March 14, 2024)
• Viewing SECURE 2.0 through a 403(b) lens (May 22, 2023)