HOUSE LEGISLATION TO PROVIDE INVESTMENT CHOICE PARITY FOR RETIREMENT PLANS SERVING TEACHERS, HOSPITAL WORKERS, CLERGY, AND NON-PROFIT EMPLOYEES

WASHINGTON, D.C. – Legislation introduced this week would establish parity for 403(b) retirement plans serving teachers, hospital workers, clergy, and non-profit employees. The bill would provide 403(b) plan participants access to the same cost-efficient investment options already available to all other employer-sponsored retirement plan participants.

The Retirement Fairness for Charities and Educational Institutions Act of 2023, HR 3063, amends federal securities law to authorize the use of collective investment trusts (CITs) and unregistered insurance company separate accounts within 403(b) retirement savings plans. The Insured Retirement Institute (IRI) supports the bipartisan measure.

“Retirement savers participating in other employer-sponsored retirement plans, such as 401(k) plans, have access to cost-effective collective investment trusts (CITs) and unregistered insurance company separate accounts,” said Paul Richman, IRI Chief Government and Political Affairs Officer. “The changes proposed in the bill will allow 403b 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.”

Currently, registration exemptions exist under the Investment Company Act of 1940, the Securities Act of 1933, and the Securities Exchange Act of 1934 that authorize 401(k) plans, 457(b) plans, the federal government’s Thrift Savings Plan (TSP), and other plan types to utilize CITs and unregistered insurance company separate accounts. 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.

Changes in the law have been made whereby 403(b) plans are now offered as institutional arrangements, with an employer selecting the plan, professionals establishing plan menus of investments, and investor protections put in place.

While these changes have made 403(b) retirement plans similar in many aspects to 401(k) and other retirement plans, an antiquated view of 403(b) retirement plans remains in federal securities law. This has created a disparity between retirement plan participants and their opportunities to access CITs and unregistered insurance company separate accounts. The changes proposed by the Retirement Fairness for Charities and Educational Institutions Act of 2023 would address the disparity and provide parity in treating these investments among all employer-sponsored retirement plans.

The SECURE 2.0 Act of 2022 included a measure that took a step towards parity by making a necessary change to the Internal Revenue Code to eliminate a barrier to authorizing the use of CITs and unregistered insurance company separate accounts in 403(b) retirement plans.

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.

The 403(b) parity legislation is one of 28 proposals in IRI’s 2023 Retirement Security Blueprint, released in February.

“This is common sense, bipartisan legislation to benefit millions of teachers, hospital workers, clergy, and non-profit employees participating in 403(b) retirement plans,” Richman said. “We are grateful for the leadership of the primary sponsors, Rep. Frank Lucas (R-Okla.), Rep. Andy Barr (R-Ky.), Rep. Bill Foster (D-Ill.), and Rep. Josh Gottheimer (D-N.J.). We also want to thank House Financial Services Committee Chairman Patrick McHenry (R-N.C.) for his efforts to move this legislation. We look forward to working with them to pass this important retirement security legislation on the House floor.”

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Contact: Dan Zielinski