House Passes INVEST Act, Brings CITs One Step Closer to 403(b) Plans

The Incentivizing New Ventures and Economic Strength Through Capital Formation Act (INVEST Act), which was introduced by House Financial Services Committee Chair French Hill, R-Arkansas; Capital Markets Subcommittee Chair Ann Wagner, R-Missouri; Representative Gregory Meeks, D-New York; and Representative Josh Gottheimer, D-New Jersey; combines bipartisan bills, each designed to strengthen capital markets.

The bill now moves to the Senate, which must approve it before it can be sent to President Donald Trump for his signature into law. 

Although the bill mainly aims to strengthen public markets and IPOs, it also contains a provision permitting CITs in 403(b) plans—a change the industry has long advocated. 

One proponent, Lynn Dudley, senior vice president of global retirement and compensation policy at the American Benefits Council, says the initiative aims to create parity between 401(k) and 403(b) plans. 

“Nobody has given us a good reason why people participating in 403(b) plans shouldn’t have the same investment choices, and the same pricing available to 401(k) participants,” she says. “It’s a leveling of the playing field.”

The SECURE 2.0 Act of 2022 amended Internal Revenue Code Section 403(b) to allow 403(b) plans with custodial accounts to invest in CITs. However, for CITs to be a permissible investment for 403(b) plans, securities laws need to be amended as well. This measure makes that change. 

CITs are bank products regulated by the federal Office of the Comptroller of the Currency and state banking regulators, not securities regulated by the Securities and Exchange Commission. CITs generally offer lower fees than mutual funds, making them an increasingly attractive option in defined contribution retirement plans.

A recent study by The Vanguard Group found that, for plans it administers, average mutual fund fees are double those of CITs: 0.16% versus 0.07%, creating a 0.09 percentage point difference. Among the largest plans—those exceeding $4 billion in assets—the fee gap grows to 0.11 percentage points. 

In August 2024, CITs surpassed mutual funds to hold the largest share of assets in target date funds, according to Morningstar. 

“Lower investment expenses mean that participants end up having greater wealth accumulation,” says, Beth Halberstadt, Aon’s U.S. defined contribution investments leader. “The less fees you pay, the more you get to keep. So we would anticipate that would allow their retirement benefit to grow at a faster rate, having a lesser fee to pay for their investment selection.” 

According to Halberstadt, the legislation would also benefit employers who offer both 401(k) plans and 403(b) plans, such as health care companies, who could provide their plans with the same investment menus. 

“Offering two different investment funds—one plan has higher investment expenses than another plan—is not ideal as an employer,” she says. “And so this would really bring that parity, especially in the healthcare organizations that have those situations.”

The bill would also broaden the definition of accredited investor and facilitate electronic delivery of investor documents. It includes new safeguards for senior investors, along with measures to enhance transparency in multi-class share structures and reduce initial public offering costs for smaller firms.

TIAA, which provides retirement research and annuities in the 403(b) plan market and has an asset management subsidiary, Nuveen, lauded the bill’s inclusion of what had been known as the Increasing Investor Opportunities Act. That act’s primary goal was removing limits on closed-end funds investing in private funds, thereby broadening investment opportunities for closed-end funds and their investors, according to TIAA’s letter of support signed by President and CEO Thasunda Brown Duckett.

The letter stated the act would “strengthen the ability of CEFs to protect the interests of their long-term shareholders against hostile campaigns waged by activist investors” and revise past Securities and Exchange Commission guidance that “limited CEFs’ investments in private funds.”