Nonprofit workers missing out on lower-cost retirement options, coalition says

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Millions of workers in schools, charities and faith-based organizations may be missing access to lower-cost retirement investments, according to a coalition pressing federal regulators for a change.

In a letter to the Securities and Exchange Commission, faith-based and conservative advocates, including former Republican officials, urged regulators to remove barriers keeping 403(b) plans from investing in collective investment trusts.

Collective investment trusts are pooled investments similar to mutual funds. Common in many 401(k) plans, they carry lower fees and are less available in many 403(b) retirement plans.

CITs have generally been unavailable in many 403(b) retirement plans due to securities law restrictions. Coalition members said that has left many nonprofit workers with higher-cost mutual fund options and potentially lower long-term returns.

The coalition cited a survey commissioned by BlackRock that found 64% of registered voters believe retirement plans should have access to the same investment options.

Congress partly addressed the issue in 2022, when it passed the SECURE 2.0 Act, which changed the tax code to allow 403(b) plans to invest in collective investment trusts. But Congress did not update the relevant securities laws, leaving most 403(b) plans unable to offer CITs without further action.

Coalition members said the SEC should act where it has authority, while others said Congress must provide a permanent solution. They pointed to the Trump administration’s broader support for expanding retirement investment options. This included a White House executive order from last year that directed the SEC to allow Americans with defined-contribution retirement plans to access alternative assets.

“Outdated regulations are quietly draining our retirement savings by locking us into higher-fee investment options,” said Carrie Sheffield, the director of the Center for AI and Technology at Independent Women. “There’s no good reason we can’t access the same tools as corporate employees; it’s an arbitrary regulatory distinction.”

Sheffield, who signed the letter, said expanding access to CITs is a logical step. She said the funds are already under federal oversight and, according to coalition members, hold 38 percent of their assets in 401(k) plans.

Sheffield and other coalition members said allowing CIT access could significantly reduce costs for nonprofit workers. Citing fee differences between mutual funds and CITs, they said some savers could keep up to $23,000 to $28,000 more over time. The groups cited a Vanguard study that found the retirement wealth of nonprofit workers could increase at least $525 million annually if CITs were allowed in 403(b) plans.

The coalition is hopeful SEC Chairman Paul Atkins will listen. Its members praised Atkins for his focus on deregulation to advance investor interests. The members believe the CIT-403(b) plan fits within that deregulatory framework.

Sheffield said the SEC has the authority to approve the plan; it just needs to be a priority.

Other coalition members, however, said Congress should provide a permanent solution. Aiden Buzzetti, the president of the Bull Moose Project, said it was up to Congress to provide a definitive solution.

“We’re asking the SEC and/or Congress to level the playing field and not hamper the retirement savings of Americans just because they happen to be employed by a church or house of worship,” he said.

The House passed the bipartisan INVEST Act last year, allowing CITs to be included in 403(b) plans. The legislation has stalled in the Senate.

Taylor Millard writes about politics and public policy for InsideSources.com.