Collective Investment Trusts possibly coming soon to 403(b) plans

Collective Investments Trusts (“CIT”s) are pooled investment funds where the administering financial institution aggregates monies across accounts to form a single portfolio. The benefits of CITs are lower costs through economies of scale. CITs are only available for some qualified retirement plans, such as 401(k)s, but have not traditionally been permitted for 403(b)s, the retirement accounts available to employees of tax-exempt organizations.

There has been some recent movement on this. About two weeks ago the House Committee on Financial Services passed the “Retirement Fairness for Charities and Educational Institutions Act of 2023,” which would permit the use of CITs in 403(b) plans. This change has been pushed for by mangers of retirement accounts, such as Vanguard, who would benefit from decreased administrative costs. Holders of 403(b) accounts would presumably benefit as well, assuming these decreased costs for Vanguard are passed on to customers.

The potential downsides of allowing CITs in 403(b)s generally center on consumer protections (see this letter from the Consumer Federation of America, which mentions that CITs could pose risks to defined contribution plan participants).

Manoj