INVEST Act Empowers 403(b) Plans with Collective Investment Trusts

In December 2025 Congress passed legislation that will revolutionize 403(b) plans.  The INVEST Act seeks to modernize retirement investment options for educators and nonprofit employees by allowing 403(b) retirement plans to invest in collective investment trusts (CITs). This change aims to align 403(b) plans with 401(k) plans, offering participants greater flexibility, lower fees, and improved parity in investment choices.

The INVEST Act bundles over 20 committee-approved measures, aiming to strengthen capital markets and improve investment opportunities for educators and nonprofit employees.

The SECURE 2.0 Act of 2022 amended the Internal Revenue Code to allow 403(b) plans with custodial accounts to invest in CITs. However, securities laws also needed to be amended for CITs to become a permissible investment for 403(b) plans. The INVEST Act addresses this gap, enabling full access to CITs for 403(b) participants.

CITs are bank products regulated by the Office of the Comptroller of the Currency (OCC) and state banking regulators, not by the Securities and Exchange Commission (SEC). Unlike mutual funds or ETFs, which must register with the SEC, CITs are exempt from SEC registration requirements. This exemption allows CITs to typically have lower fees and reduced administrative, marketing, and distribution costs compared to mutual funds.  

CITs generally offer lower fees than mutual funds. For example, a Vanguard study found that average mutual fund fees are more than double those of CITs (16 basis points vs. 7 basis points). Among the largest plans (over $4 billion in assets), the fee gap grows to 11 basis points.

Lower investment expenses mean participants can accumulate more wealth over time. Reduced fees allow retirement benefits to grow faster.

Employers offering both 401(k) and 403(b) plans can provide the same investment menus, reducing administrative complexity and ensuring fairness, especially in organizations like healthcare that offer both types of plans.

CITs expand flexibility in investment strategies, allowing retirement savers to diversify their savings across a broader range of securities. CITs are governed by ERISA standards when applicable, which are considered the highest fiduciary standards under the law.

The American Retirement Association (ARA) and other industry advocates strongly support the change, citing enhanced retirement security, cost reduction, improved diversification, and increased flexibility for plan participants.

Financial firms and nonprofit organizations have expressed strong support, emphasizing that the legislation will strengthen retirement outcomes for millions of Americans.

Advocates argued that the change is necessary to provide 14.5 million Americans with access to lower-cost, strictly regulated retirement vehicles available to other employer-sponsored plans.

Some opposition existed, with concerns about removing 403(b) plans from federal securities law oversight. Critics argued this could benefit financial intermediaries at the expense of investors, but industry experts emphasize that CITs are governed by ERISA standards when applicable, ensuring strong protections for participants.

The INVEST Act, building on SECURE 2.0, aims to bring CITs to 403(b) plans, offering significant benefits over mutual funds—primarily lower fees, greater flexibility, and improved parity with 401(k) plans. The change was widely supported by industry advocates and will modernize retirement investment options for millions of educators and nonprofit employees.

In conclusion, the INVEST Act represents a significant step toward modernizing retirement plans for educators and nonprofit workers by granting access to CITs. If enacted, it will reduce costs, improve investment diversification, and ensure robust regulatory oversight for 403(b) plans. The legislation is widely supported and poised to enhance retirement security for millions of Americans.

Bridgebay Financial, Inc. advises employer retirement plans including 401(k), 403(b), 457, profit-sharing, and defined contribution plans—on investment policy statements, committee charters, asset allocation, investment style selection, fund selection, ongoing monitoring, and provider evaluation. The firm’s advice is delivered through consultations with Retirement Committees and does not involve discretionary account management services.  Bridgebay creates Investment Policy Statements that provide a disciplined framework for plan governance, due diligence, and compliance with ERISA, DOL, and other regulations.  These policies set plan objectives, authorities, responsibilities, and controls, and are reviewed annually to help fiduciaries fulfill their responsibilities.  

Bridgebay conducts asset allocation and gap analyses to ensure fund lineups are diversified, efficient, and meet 404(c) requirements, identifying gaps or redundancies in fund offerings.  The firm evaluates fund menus for cost-effectiveness, asset class representation, and alignment with participant demographics and preferences, including socially responsible investments.  Advanced quantitative tools are used to assess target date and target risk funds, comparing them to benchmarks and peers to help sponsors understand performance.  Fee analysis is a core service, with Bridgebay ensuring fee transparency, benchmarking expenses, and assisting sponsors in renegotiating or recapturing fees for improved plan value.  

Ongoing monitoring are emphasized, with quarterly reviews and user-friendly reports provided to Retirement Committees.  Bridgebay’s proprietary scoring system, proactive meetings, and vigilant oversight support prudent governance and help plan sponsors make informed decisions.