Retirement Fairness for Charities and Educational Institutions Act of 2025
- Sponsor
- Sen. Britt, Katie Boyd [R-AL]
- Committees
- Banking, Housing, and Urban Affairs Committee (primary)
- Last action
- Feb 5, 2025
Bottom line
The bill aims to modernize 403(b) retirement plans by granting them access to more diverse and potentially lower-cost investment options, such as collective investment trusts, which are currently available to 401(k) plans.
What it actually does
This bill amends the Investment Company Act of 1940, the Securities Act of 1933, and the Securities Exchange Act of 1934 to expand the types of investment vehicles available to 403(b) retirement plans. Specifically, it allows 403(b) plans, which are primarily used by non-profit organizations and educational institutions, to invest in collective trust funds (CTFs) and other pooled investment vehicles, similar to how 401(k) plans operate. The bill includes conditions for this expanded access, such as requiring plans to be subject to ERISA, or for the employer to act as a fiduciary for investment selection, or for governmental plans to have a fiduciary review and approve investment alternatives.
Proponents argue
Supporters argue this bill will enhance 403(b) plans by allowing them to access collective investment trusts (CITs), which typically offer lower fees and broader investment options compared to the annuity contracts and mutual funds traditionally available. This could lead to better retirement outcomes for employees of non-profits, hospitals, and educational institutions by increasing investment returns and reducing costs, thereby leveling the playing field with 401(k) plans.
Opponents contend
Critics might argue that expanding investment options could introduce new complexities or risks for plan sponsors and participants, especially if the oversight mechanisms are not robust enough. There could also be concerns about the potential for increased administrative burdens or the introduction of less transparent investment products, though the bill includes specific fiduciary requirements to mitigate some of these concerns.
The bill is concise and can be read and understood quickly by an informed reader, making it accessible for evaluation.
Section 2(a) amending 15 U.S.C. 80a-3(c)(11) of the Investment Company Act of 1940; Section 2(b) amending 15 U.S.C. 77c(a)(2) of the Securities Act of 1933; Section 2(c) amending 15 U.S.C. 78c(a)(12)(C) of the Securities Exchange Act of 1934.
Expanding 403(b) Plan Eligibility for Pooled Investment Vehicles
This provision amends federal securities laws to allow 403(b) plans to invest in collective trust funds (CTFs) and other pooled investment vehicles, similar to how 401(k) plans currently operate. Previously, 403(b) plans were largely restricted to annuity contracts and mutual funds. The bill introduces conditions for this expanded access, requiring plans to be subject to Title I of the Employee Retirement Income Security Act of 1974 (ERISA), or for the employer making the plan available to agree to serve as a fiduciary for investment selection, or for governmental plans to have a fiduciary review and approve each investment alternative offered.
Supporters argue
Supporters argue that this change will modernize 403(b) plans, bringing them in line with 401(k) plans by allowing access to more cost-effective and diverse investment options like CITs. This parity is expected to improve retirement outcomes for participants in the non-profit and education sectors by reducing investment costs and potentially increasing returns.
Critics contend
Some might express concern that while offering more options, it also places new or clarified fiduciary responsibilities on employers who might not be equipped for them, potentially leading to increased liability or administrative burden if not properly managed. However, the bill does include specific conditions to address these fiduciary concerns.
Tradeoffs
The bill balances the desire for greater investment flexibility and potentially lower costs for 403(b) participants against the need for appropriate fiduciary oversight and protection for these plans, particularly for those not subject to ERISA, and for governmental plans.
These subclauses specify that for governmental 403(b) plans to access the expanded investment options, the employer, a fiduciary of the plan, or another person acting on behalf of the employer must review and approve each investment alternative offered to participants prior to it being made available.
Section 2(a)(D)(iv)(II), Section 2(b)(1)(ii), and Section 2(c)(1)(II)
Why it matters:This is standard legislative practice for specifying conditions and exceptions within complex statutory amendments to existing laws. It is not necessarily evasive but requires detailed parsing of the legal text.
Case for: Proponents argue that these specific fiduciary review requirements for governmental 403(b) plans ensure that even plans not subject to ERISA still have a robust mechanism for oversight regarding investment selection, thereby protecting participants from potentially unsuitable or high-cost investment options.
Case against: Critics might argue that adding specific fiduciary duties for governmental plans could create additional administrative hurdles or confusion for public sector employers who may not have the same resources or expertise as private sector ERISA fiduciaries, potentially increasing compliance costs.
Estimated impact: Ensures a layer of protection and due diligence for governmental 403(b) plans, potentially impacting how thousands of public sector employers manage their retirement offerings and affecting millions of public sector employees.