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Regulation and Compliance > Legislation

New Retirement Bill Expands 403(b) Fund Menu

By Melanie Waddell

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New legislation would allow 403(b) plans to invest in collective investment trusts (CITs) and unregistered insurance company separate accounts.

H.R. 3063, the Retirement Fairness for Charities and Educational Institutions Act of 2023, has four primary sponsors: Rep. Frank Lucas, R-Okla.; Rep. Andy Barr, R-Ky.; Rep. Bill Foster, D-Ill., and Rep. Josh Gottheimer, D-N.J.

It amends federal securities laws to provide 403(b) plan participants — teachers, hospital workers, clergy and nonprofit employees — “access to the same cost-efficient investment options already available to all other employer-sponsored retirement plan participants,” according to the Insured Retirement Institute, which supports the bipartisan bill.

Changes proposed in the bill “will allow 403(b) plan providers increased flexibility to build more robust investment lineups for plan participants consisting of lower-cost options that preserve principal and provide protected guaranteed lifetime income solutions,” Paul Richman, IRI chief government and political affairs officer, said in a statement.

Product features in a separate account can vary, but “will commonly include what can be broadly described as the investment portion of a variable annuity or a life insurance product,” IRI explains.

“By being exempt and thereby unregistered, it allows for lower cost offerings because of the registration process,” IRI continued.

However, an unregistered insurance company separate account remains under the Securities and Exchange Commission’s oversight and enforcement.

“The bill would only provide for unregistered insurance company separate account products to be exempted from registration to be offered in 403(b) plans, just as they are now permitted to be exempt from registration in all other retirement [plans], such as 401(k) 457(b) and the federal Thrift Savings Program,” IRI explained.

Bringing Parity to Retirement Plans

“These exemptions do not currently apply to 403(b) plans largely because 403(b) plans previously were offered as retail products sold directly to retirement savers at applicable organizations,” IRI said. However, such plans are becoming increasingly available as institutional arrangements managed by a professional.

The Setting Every Community Up for Retirement Enhancement (Secure) 2.0 Act cleared the way for authorizing the use of CITs and unregistered insurance company separate accounts in 403(b) plans, IRI said.

However, “without enacting the changes to federal securities law included in the new legislation, those saving for retirement through a 403(b) retirement plan will continue to face a disparity with participants in 401(k) and all other retirement plans,” IRI said.

“This is commonsense, bipartisan legislation to benefit millions of teachers, hospital workers, clergy and non-profit employees participating in 403(b) retirement plans,” Richman said. “We look forward to working with them to pass this important retirement security legislation on the House floor.”

Melanie Waddell

@Think_MelanieW

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