Congress should do everything in its power to make it easier for the American people to save for retirement while maximizing their returns.
Congress should do everything in its power to make it easier for the American people to save for retirement while maximizing their returns.
S enior-citizen-advocacy organizations across the nation could not be more pleased that Congress is finally rectifying the regulatory inequities that nonprofit and public-sector workers — such as doctors and nurses, teachers, and school faculty — have faced for generations with respect to their retirement planning.
Most of these public servants have 403(b) plans, which are effectively 401(k)s for public-school, nonprofit, and state and local health-care employees. However, there is one notable difference: The government prohibits 403(b)s from utilizing collective investment trusts (CITs).
Like mutual funds, CITs allow workers to invest in funds tied to a vast array of stocks and bonds — diversifying their portfolios in ways intended to mitigate risk. However, unlike with mutual funds, regulation of CITs falls to the U.S. Treasury Department’s Office of the Comptroller of the Currency, not the Securities and Exchange Commission. As a result, they do not face SEC regulatory requirements (despite theoretically being just as safe) and thus frequently have fees that are 25 to 40 percent lower than those of mutual funds. In fact, according to Lazard Asset Management, “CITs are lower 82% of the time when comparing the least expensive CIT and mutual fund classes or tiers.”
For all these reasons and more, the private sector’s use of CITs is dramatically rising. In fact, Morningstar’s 2022 report found that net contributions to CITs eclipsed net contributions to mutual funds by a whopping $120 billion the previous year. Yet the government is still prohibiting 403(b)s from doing the same.
With the statistics about national nurse and teacher shortages abounding, which have grown in commonality in no small part because of their economic struggles, particularly in retirement, allowing their retirement plans to begin using CITs would appear to be a no-brainer.
That’s precisely why Representatives Frank Lucas (R., Okla.) and Josh Gottheimer (D., N.J.) introduced the Retirement Fairness for Charities and Educational Institutions Act — to amend U.S. securities laws so that 403(b) plan sponsors can finally start using CITs.
Representative Wiley Nickel (D., N.C.), a co-sponsor of the bill, said there is “no reason that people teaching our children and caring for our sick should be paying millions more in investment costs than private sector employees.” He is correct, and fortunately, most of Congress seems to agree.
Last year, the legislative branch even passed a measure, which President Biden signed into law, to do just this. The bill, the SECURE 2.0 Act of 2022, updated U.S. tax law to permit using CITs in 403(b)s. However, because it did not update the securities laws that went along with it, the regulatory rollback never came to fruition. Representative Lucas’s bill would fix this by amending the Investment Company Act of 1940, the Securities and Exchange Act of 1934, and the Securities Act of 1933 to finally permit 403(b) plans’ use of CITs.
Weeks ago, Democrats and Republicans on the House Committee on Financial Services approved Representative Lucas’s legislation on a 35–12 vote. The bill now awaits full House and Senate consideration, which it should receive before the year’s end.
Passage of this bill couldn’t come at a better time. According to the Teachers Insurance and Annuity Association of America Institute and George Washington University’s Global Financial Literacy Excellence Center’s 2023 Personal Finance Index, 25 percent of America has cut its retirement savings because of inflation-related hardships. An April study released by D.A. Davidson & Company, a wealth-management firm, corroborated its findings. It estimated that inflation is hitting or will hit 77 percent of Americans’ ability to save for retirement — a 13 percent increase from the previous year.
During turbulent economic times such as the present day, Congress should do everything in its power to make it easier for the American people to save for retirement while maximizing their returns. The Retirement Fairness for Charities and Educational Institutions Act is aimed at doing just that. It is designed to level the playing field for millions of school-faculty and government health-care professionals at a time when they need it most, and for that, we should all be grateful.