A new bill introduced in Congress would allow 403(b) plans maintained by tax-exempt organizations to make use of collective investment trusts (CITs). This bill, known as the Retirement Fairness for Charities and Educational Institutions Act of 2023 (HR 3063), aims to provide these organizations with access to a wider range of investment options to help secure retirement savings for their employees. If passed, this legislation could have a significant impact on the retirement planning landscape.
Currently, 403(b) plans, which are retirement plans for employees of nonprofit charities and public education institutions, have limited investment options. However, this new bill would expand the investment choices available to these plans by allowing them to invest in CITs. CITs are a type of pooled investment vehicle that offers access to a diversified portfolio of assets, typically managed by professional investment managers.
The House Financial Services Committee has already passed this legislation, indicating strong support for the bill. It is now headed for Congressional markup, where further discussions and amendments may take place before it can become law. If the bill is successful, it could open up new investment opportunities for tax-exempt organizations and their employees.
One of the key benefits of allowing 403(b) plans to invest in CITs is the potential for increased returns. Most target-date providers saw losses in 2022, with gains coming mostly from CIT-based funds. By including CITs in their investment options, tax-exempt organizations can potentially enhance the performance of their retirement plans and provide better outcomes for their employees.
The bill is part of a broader effort to improve retirement savings options for tax-exempt organizations. The SECURE 2.0 Act of 2022, a recently passed legislation, also aimed to enhance retirement security. However, the Retirement Fairness for Charities and Educational Institutions Act of 2023 specifically focuses on expanding investment choices for 403(b) plans.
In the target-date fund market, providers have been facing challenges due to saturation. This has led to the liquidation or merger of investment options and a slowdown in product development. Allowing 403(b) plans to invest in CITs could provide a solution to this issue by diversifying the available investment options and stimulating innovation in the market.
A collective investment trust is an unincorporated mutual fund that holds assets and provides profits to individual unit owners. It is a popular investment vehicle for retirement plans, as it allows for efficient pooling of assets and professional management. By granting access to CITs, tax-exempt organizations can harness the benefits of these vehicles to maximize returns and effectively manage their employees' retirement savings.
In conclusion, the proposed legislation to allow 403(b) plans maintained by tax-exempt organizations to invest in collective investment trusts is an important development in retirement planning. It offers the potential for increased investment options, improved performance, and better outcomes for employees. With the support of the House Financial Services Committee and the ongoing legislative process, this bill could pave the way for a more robust retirement savings landscape for tax-exempt organizations.
