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How to Improve Retirement Plans for Teachers and Other Public Servants

One simple fix to bring down investment costs.

Congressmembers Jimmy Panetta, Ron Estes, Brendan Boyle, Darin LaHood, Madeleine Dean, and Andy Barr have introduced a new bill--The Public Service Retirement Fairness Act--that would allow 403(b) plans to invest in collective investment trusts. These 403(b) plans are like private-sector 401(k) plans, but they are for teachers and other public servants as well as some churches and nonprofits. Such a change could help introduce low-cost options to plans that have been riddled with high-cost options and conflicts of interest.

Introducing CITs into these plans will not fix everything in the 403(b) market. However, we support the proposal (see a full analysis here) because it is a common-sense, straightforward way to help some plans get a lot better. Simply put, workers in 403(b) plans deserve access to the same best-in-class investments as workers in other plans, and CITs can often provide the best value compared with the mutual funds and annuities available in most 403(b) plans. We also have some ideas for further improving the legislation to ensure that it confers some important participant protections.