House Passes Bill to Reform 403(b) Retirement Plans

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The House of Representatives passed a bill Wednesday that would reform retirement savings plans for employees of charities, schools and other nonprofit organizations, sending the bipartisan measure toward Senate consideration.

The bill, H.R. 1013, called the “Retirement Fairness for Charities and Educational Institutions Act of 2025,” was introduced on Feb. 5, 2025, by U.S. Rep. Frank Lucas (R-Okla.), chairman of the Task Force on Monetary Policy, Treasury Market Resilience and Economic Prosperity, with three co-sponsors. Since its introduction, the bill has attracted broad bipartisan support, picking up 19 additional co-sponsors.

The legislation removes long-standing regulatory barriers that have limited 403(b) plans compared to their private-sector counterparts. Specifically, it permits 403(b) plans to invest in collective investment trusts and insurance company separate accounts—cost-effective investment vehicles that have long been available to 401(k) plans but were previously off-limits to nonprofit and public-sector employees. Supporters say this change promotes competition among investment providers and creates more opportunities for workers to grow their retirement savings.

“Teachers, healthcare workers, nonprofit employees and others who dedicate their careers to serving our communities and participate in 403(b) plans deserve the same retirement investment choices available to those with 401(k) plans,” said Karen Barr, president and CEO of the Investment Adviser Association, in a statement. “We applaud the bipartisan support for this commonsense legislation and urge the Senate to follow suit.”

The Investment Company Institute issued a statement in support of the bill.

“Nurses, teachers and nonprofit workers should have the same opportunities for a secure financial future and retirement that private sector employees enjoy. This bill accomplishes that goal,” the ICI stated.

403(b) plans are tax-advantaged retirement savings vehicles commonly used by employees of public schools, universities, churches and 501(c)(3) tax-exempt organizations, functioning similarly to 401(k) plans offered in the private sector.

In 2020, Wealth Management wrote about the long-standing issues with 403(b) plans, particularly those facing public school teachers. The K-12 403(b) plan system is dominated by high-fee products pushed by high-commission sales agents, primarily from insurance companies. These brokers may appeal to well-meaning administrators to get themselves invited into teachers’ lounges, lunchrooms or even classrooms to pitch the investment products.

But it’s the way these plans escape regulatory scrutiny that makes nefarious sales practices possible. Private schools, not-for-profit hospitals and not-for-profit universities 403(b)s are covered under the Employee Retirement Income Security Act of 1974, so they enjoy the same investor protections that regulate 401(k) plans.

Public K-12 school retirement plans fall outside the ERISA spotlight. There are some minimum requirements to keep the plans in compliance. But observers say too often a district turns the plan over to a third-party administrator that makes pay-to-play arrangements with financial firms to put their investments on the list of options—many of them annuities from insurance firms.

The bill’s amendments would exempt certain 403(b) plans from registration requirements under federal securities laws, provided specific conditions are met. These conditions include requirements that the plan be subject to Title I of the ERISA, that the employer sponsoring the plan agree to act as a fiduciary responsible for selecting investment options available to participants, or that the plan qualifies as a governmental plan. Additionally, for governmental 403(b) plans, the bill requires that the employer, a plan fiduciary, or another designated party review and approve each investment option before it is made available to participants.