S-424-119
Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.
Sponsored by Katie Britt (R-AL)
What it does
This bill would amend three federal securities laws (the Investment Company Act of 1940, the Securities Act of 1933, and the Securities Exchange Act of 1934). It would let 403(b) retirement plans at charities, schools, and public employers use collective investment trusts and insurance company separate accounts without registering them as mutual funds. To qualify, a plan must be covered by ERISA, have an employer agree to act as a fiduciary in selecting investments, or be a governmental plan whose investment options are reviewed and approved by the employer or another fiduciary.
Who benefits
Employees of public schools, universities, hospitals, and nonprofits who save in 403(b) plans and may gain access to lower-cost collective trusts, which 401(k) plans already use. Employers that sponsor 403(b) plans and could negotiate lower fees or broader investment menus. Banks and insurers that manage collective trusts and separate accounts and could reach a new client market. Smaller 403(b) plans that may gain access to institutional-style pricing.
Who is hurt
Mutual fund companies that currently hold most 403(b) assets and may lose business to cheaper collective trusts. Participants in non-ERISA plans, who would get less SEC-registered disclosure and fewer investor protections in these vehicles. Employers who agree to serve as fiduciaries and could face added liability and administrative duty. The SEC would have less oversight of these investments, and some investor advocates may see reduced transparency as a cost.
Supporters argue
Supporters argue that 403(b) participants are the only major group of retirement savers barred from collective trusts, which 401(k) plans use to cut fees and which can lower costs through pooled assets. They contend that the fiduciary and employer-review conditions keep meaningful safeguards in place. They cite the bipartisan sponsorship and the fact that school, hospital, and nonprofit workers have long had narrower and costlier choices than private-sector workers.
Opponents argue
Opponents argue that removing securities registration from these vehicles would reduce the disclosure and SEC oversight that protect ordinary savers, especially in governmental plans not covered by ERISA. They contend that employer review of investment options is a weaker safeguard than registration and may expose participants to conflicts of interest. They cite concerns that lower fees are not guaranteed and that collective trusts offer less transparency than mutual funds.
Constitutional context
Congress regulates securities and retirement plans under the Commerce Clause (Art. I, §8, cl. 3), and Wickard v. Filburn (1942) supports broad authority over economic activity affecting interstate markets. The bill modifies existing regulatory exemptions and raises no clear constitutional question.
Checks and balances
Congress would narrow the SEC's registration-based oversight by statute, shifting some protection to employer fiduciaries and the Department of Labor under ERISA, with courts available to enforce fiduciary duties.
Historical precedent
Congress previously granted similar securities-law exemptions to 401(k) plans and their collective trusts, and the 403(b) exclusion has been the subject of prior bills, such as earlier versions of the Retirement Fairness for Charities and Educational Institutions Act.