Senate Hearing Pushes 403(b) Access to Collective Investment Trusts

On Aug. 6, 2026, the Senate Committee on Banking, Housing, and Urban Affairs heard testimony backing S.424, the Retirement Fairness for Charities and Educational Institutions Act, which would let 403(b) retirement plans invest in Collective Investment Trusts (CITs) for the first time. That matters because roughly 15 million teachers, nurses, and nonprofit employees who save through 403(b) plans are currently barred from a fund structure that 401(k) savers have used for decades to cut costs, according to reporting on the hearing from ASPPA. The bill already has 13 cosponsors on the committee, but it is still a bill, not law, and a separate Department of Labor proposal discussed at the same hearing would add its own layer of change to what retirement plans can hold.

Key Takeaways

• S.424 would let 403(b) plans hold CITs like 401(k) plans already can, potentially affecting 15 million teachers, nurses, and nonprofit workers.
• CITs are bank-regulated, not SEC-registered, pooled funds available only to qualified retirement plans, and they run far lower expense ratios: about 0.13% versus 0.76% for comparable mutual funds.
• The bill has 13 committee cosponsors but is still pending; it does not force any plan to adopt CITs, it only removes the legal barrier.
• A parallel DOL proposal, the Investment Selection Rule, would separately give fiduciaries more legal cover to add alternative investments, a related but distinct policy track discussed at the same hearing.

What Actually Happened on Aug. 6

The Senate Banking Committee convened a hearing that put two retirement-policy threads on the same table. The first is S.424, sponsored by Sen. Katie Britt and Sen. Raphael Warnock, which would amend federal law so 403(b) plans can invest in CITs the same way 401(k) plans already do. The second is the Department of Labor's proposed Investment Selection Rule, which would give plan fiduciaries clearer legal cover to include alternative investments, think private equity, private credit, and other non-public assets, in retirement plan lineups without inviting a lawsuit every time a saver loses money on one.

Committee chair Sen. Tim Scott framed the CIT push in his opening statement around the 15 million people it would affect: nonprofit hospital workers, public school teachers, and employees of religious and charitable organizations who save through 403(b) plans. Witnesses included Dalia Blass of Sullivan & Cromwell, Kenneth Bentsen of SIFMA, Mike Flood of the U.S. Chamber of Commerce, and Cantrell Dumas of the Joint Center for Political and Economic Studies, who offered a more cautious read on how fast the guardrails should come down.

CIT vs. Mutual Fund: The Plain-English Version

A mutual fund is a pooled investment vehicle registered with the SEC that anyone, retail or institutional, can buy through a brokerage account or a retirement plan. It comes with a public prospectus, daily SEC reporting requirements, and a cost structure that includes marketing and distribution expenses baked into the expense ratio.

A Collective Investment Trust (CIT) is also a pooled investment vehicle, but it is a bank- or trust-company-administered fund built exclusively for qualified retirement plans. CITs are not SEC-registered securities. They are regulated instead by the Office of the Comptroller of the Currency (OCC), the Department of Labor, and ERISA (the Employee Retirement Income Security Act), according to State Street's overview of CIT structures. Because CITs skip the retail-facing compliance and marketing apparatus that mutual funds carry, and because participants are institutional retirement plans rather than individual retail buyers, the underlying costs run lower.

The numbers back that up. Morningstar found the median large-blend CIT charges an expense ratio around 0.13%, compared with 0.76% for a comparable mutual fund share class, per its analysis of what actually sits inside 401(k) menus. PLANADVISER cites Broadridge's Toby Cromwell putting the average savings from switching a plan lineup to CITs at roughly 15 basis points, driven by lower administrative, marketing, and management costs, in its piece on whether CITs have earned their growing share of defined-contribution plans. On a $50,000 account balance held for 20 years, the difference between a 0.13% and a 0.76% annual fee compounds into thousands of dollars in fees never paid, money that instead stays invested and keeps growing.

There is a tax wrinkle too. CITs qualify as "group trusts" under IRS Revenue Ruling 81-100, meaning they are generally tax-exempt so long as every participant is itself a qualified retirement plan, per EY's analysis of CIT growth in U.S. retirement plans. That structure only works, legally, if the entity buying into the trust is a plan the IRS recognizes as qualified for that purpose, which is exactly where 403(b) plans currently get shut out.

• 15 million nonprofit employees, from hospital workers to public school teachers, are locked into 403(b) plans that cannot currently hold CITs, according to Sen. Scott's opening statement at the hearing.
• 13 members of the Senate Banking Committee already cosponsor S.424, the bill that would fix this.
• CITs run a median expense ratio near 0.13% versus 0.76% for comparable mutual funds, per Morningstar.
• The DOL's proposed Investment Selection Rule is a separate, parallel effort that would also expand what fiduciaries can put into 401(k) and 403(b) menus, including alternative assets.

Why 403(b) Plans Got Left Out in the First Place

This isn't a case of Congress deciding nonprofit workers deserved a worse deal. It's closer to a drafting gap that never got patched. The federal statutes governing which retirement plans can hold CITs were written with 401(k) plans, and the bank and trust laws underpinning CITs, in mind. 403(b) plans, IRAs, and 457(f) plans were never added to that list, according to State Street's CIT primer. Over decades, as CITs quietly grew into a meaningful share of the 401(k) market, that omission calcified into current law, and 403(b) participants kept paying higher mutual-fund-style costs by default, not by choice.

The people affected are concentrated in specific professions: public school teachers, university staff, hospital and healthcare system employees, and workers at religious and other tax-exempt organizations. These are, broadly, sectors where take-home pay is already lower than comparable private-sector roles, which makes the cost gap on retirement savings sting more, not less.

What S.424 Would Actually Change

S.424, formally titled the Retirement Fairness for Charities and Educational Institutions Act, would amend the relevant statutory language so 403(b) plans can invest in CITs on the same footing as 401(k) plans. It would not create a new type of retirement account, and it would not force any 403(b) plan to add CITs to its menu. It removes a legal barrier and leaves the decision of whether to actually offer CITs up to each plan sponsor and its fiduciaries.

That distinction matters because access and adoption are two different things. Even after the statutory fix, a school district's 403(b) plan or a hospital system's retirement committee still has to decide the CIT option is worth adding, negotiate terms with a trust company, and update its plan documents. Passage of S.424 would be the starting gun, not the finish line.

The DOL's Investment Selection Rule: A Parallel Track

The Investment Selection Rule discussed at the same hearing is a separate DOL rulemaking effort, and it is important not to conflate the two. Where S.424 is about which fund structures a 403(b) plan is legally allowed to hold, the Investment Selection Rule is about the fiduciary standard a plan sponsor must meet when picking any investment, including alternative assets like private equity, private credit, or other non-publicly-traded holdings.

Fiduciaries under ERISA carry personal legal exposure if they select an investment that turns out to perform poorly and a court later finds the selection process itself was unreasonable. That exposure is exactly why many plan sponsors have historically avoided anything more exotic than index funds and target-date funds, regardless of whether the investment might have been appropriate. The DOL's proposed rule aims to give fiduciaries clearer, safer criteria for including alternative investments so that reasonable process, not fear of hindsight litigation, drives the decision.

Witnesses at the hearing were not uniformly enthusiastic about that combination. Cantrell Dumas of the Joint Center for Political and Economic Studies raised caution about moving too quickly to open retirement menus to less liquid, harder-to-value alternative assets, particularly for savers with smaller account balances and less capacity to absorb a bad outcome. That tension, lower costs and more choice on one side, less transparency and liquidity risk on the other, is the real debate underneath the hearing's bipartisan tone.

CIT Adoption Trends Already Underway in 401(k) Land

None of this is happening in a vacuum. CITs have been steadily gaining share inside 401(k) plans for years, a trend EY documents in its research on the structure's growth. Plan sponsors, and the consultants who advise them, have increasingly treated CITs as the default lower-cost option once a plan reaches sufficient scale to access them. PLANADVISER's reporting frames the open question for CITs less as "will they keep growing" and more as whether their lower costs come with any real tradeoff in reporting transparency or investor protections compared with SEC-registered mutual funds, since CITs don't carry the same public disclosure requirements.

That tradeoff is worth stating plainly. A mutual fund's prospectus, holdings, and performance data are public and standardized. A CIT's disclosures go through the plan sponsor and the trust company rather than a public SEC filing, which means individual savers researching their own 403(b) options may find less independently verifiable information about a CIT than about a comparable mutual fund. Lower cost and lower public transparency tend to travel together in this corner of the market, and that is a real cost, not just a technicality, for the saver trying to evaluate whether the fund itself is being run well.

Comparing the Structures

Feature	Mutual Fund	Collective Investment Trust (CIT)
Regulator	SEC-registered	OCC / DOL / ERISA
Who can invest	Retail and institutional investors	Qualified retirement plans only (currently 401(k), not 403(b))
Median expense ratio (large-blend)	~0.76%	~0.13%
Public disclosure	Prospectus, public SEC filings	Disclosed to plan sponsor, not publicly filed
Tax treatment	Standard fund taxation	Generally tax-exempt group trust under Rev. Rul. 81-100
Currently available to 403(b) plans	Yes	No, pending S.424

What Could Change for Retirement Savers If This Passes

If S.424 becomes law and 403(b) plan sponsors follow the cost-driven pattern already visible in the 401(k) market, savers in these plans could see their plan menus shift toward CIT versions of the same underlying strategies at meaningfully lower expense ratios. Given the roughly 15-basis-point average savings PLANADVISER cites, a career-long 403(b) saver could plausibly keep a meaningful chunk of what would otherwise have gone to fund expenses, though the exact dollar impact depends entirely on account size, time horizon, and whether a given plan sponsor chooses to adopt CITs at all.

Combined with the DOL's Investment Selection Rule, the broader shift on the table is toward 403(b) plans looking more like sophisticated 401(k) plans: lower-cost fund wrappers, and potentially, over time, access to a wider set of alternative investments under a clearer fiduciary standard. Neither of these things is guaranteed, and neither has happened yet. S.424 has 13 cosponsors on a committee, not a floor vote, a House companion, or a presidential signature. The Investment Selection Rule is a DOL proposal, which means it still has to clear a rulemaking and comment process before it has any legal force.

Frequently Asked Questions

Is 403(b) access to CITs law yet?

No. As of the Aug. 6, 2026 hearing, S.424 (the Retirement Fairness for Charities and Educational Institutions Act) is a bill with 13 Senate Banking Committee cosponsors. It has not passed the Senate, has no confirmed House companion status discussed at the hearing, and has not been signed into law. Nothing changes for current 403(b) participants until that process concludes.

What is a Collective Investment Trust, in one sentence?

A CIT is a pooled investment fund run by a bank or trust company exclusively for qualified retirement plans, regulated by the OCC, DOL, and ERISA rather than the SEC, which is why it typically costs less than a comparable mutual fund but also discloses less publicly.

Why can 401(k) plans use CITs but 403(b) plans cannot?

The statutes governing which plans can legally hold CITs were written around 401(k) plans and never extended to 403(b), IRA, or 457(f) plans, according to State Street's CIT overview. It is widely characterized as a legislative gap rather than a deliberate policy choice, which is what S.424 is designed to close.

Does the DOL's Investment Selection Rule mean my 403(b) will hold private equity soon?

Not automatically. The proposed rule would give plan fiduciaries clearer legal standards for including alternative investments like private equity or private credit, but it is still a proposal moving through the rulemaking process, and any individual plan sponsor would still have to choose to add such an option and satisfy its fiduciary duty in doing so. Witnesses at the Aug. 6 hearing, including Cantrell Dumas of the Joint Center for Political and Economic Studies, flagged caution about moving too fast on less liquid alternatives for smaller retirement accounts.

Author Disclosure: Jeff Barnes, MBA has no personal position in any company, fund, or platform named in this article. Angel Investors Network has no current commercial relationship with any party mentioned. AIN provides marketing and education services, not investment advice. Past performance does not guarantee future results. All investments involve risk, including loss of principal.