S.424 (Retirement Fairness for Charities and Educational Institutions Act of 2025) revises key securities-law definitions and exemptions so plans that qualify under section 403(b) of the Internal Revenue Code can be treated like ERISA-covered pension plans or governmental plans for the purposes of the Investment Company Act of 1940, the Securities Act of 1933, and the Securities Exchange Act of 1934. The bill explicitly adds 403(b) custodial accounts, certain collective trust funds, and separate accounts funded by 403(b) contributions to the list of vehicles exempted from registration as investment companies or as covered issuers, subject to specified conditions.
This is significant for nonprofits, educational institutions, and their retirement-plan service providers because it removes a securities-law barrier that has limited access to pooled investment vehicles (collective trust funds, separate accounts) for many 403(b) plans. The bill achieves that by tying the exemption to one of three predicates: the plan is subject to ERISA Title I, the employer agrees to serve as the fiduciary selecting investment alternatives, or the plan is a governmental plan — and by requiring pre-approval of investment alternatives in certain governmental-plan cases.
That changes who bears selection responsibility and legal risk and will affect product design, fiduciary workflows, and regulatory scope for providers and sponsors of 403(b) plans.
At a Glance
What It Does
The bill amends Investment Company Act §3(c)(11), Securities Act §3(a)(2), and Exchange Act §3(a)(12)(C) to extend existing registration and investment-company exemptions to 403(b) plans and related accounts when the plan is ERISA-covered, the employer agrees to act as the fiduciary for investment selection, or the plan is a governmental plan. It also adds a condition that each investment alternative for certain governmental 403(b) plans be reviewed and approved before being offered.
Who It Affects
Nonprofit and educational employers that sponsor 403(b) plans, plan fiduciaries and ERISA counsel, recordkeepers and investment managers who run collective trusts and separate accounts, and participants in 403(b) plans who may gain access to pooled, lower-cost investment options. Securities issuers and broker-dealers that structure, register, or sell products to 403(b) plans will also be affected.
Why It Matters
The change removes a recurring legal friction that has kept many 403(b) plans from accessing pooled vehicles commonly used in 401(a) plans, potentially lowering costs and expanding product choice. It also reallocates selection responsibility — and associated legal exposure — to employers or fiduciaries, creating new compliance and liability considerations for plan sponsors and service providers.
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What This Bill Actually Does
S.424 makes surgical edits to three core federal securities statutes so that certain 403(b) plans are no longer treated as investment companies or as offerings requiring registration. The Investment Company Act amendments explicitly list custodial 403(b)(7) accounts, collective trust funds holding only 403(b)-related assets, and separate accounts funded by 403(b) contributions among the vehicles that can be exempt from the Act’s registration and regulation.
Parallel edits to the Securities Act and Exchange Act update the definitions and carve-outs used to determine when retirement-plan investments are treated as securities offerings or as registrable issuers.
Crucially, the bill does not create a blanket exemption for every 403(b) arrangement. It conditions the exemption on one of three things: the plan is already subject to ERISA Title I (making it an ERISA-covered plan), the employer making the plan available agrees to serve as the fiduciary responsible for selecting the menu of investment options, or the plan is a governmental plan under IRC §414(d).
For governmental plans, the bill goes further: it requires that the employer, a plan fiduciary, or an authorized agent review and approve each investment alternative before that option is offered to participants. Those conditions turn the securities-law change into a change in who must perform (and document) investment selection and oversight.Because these are changes to securities-law definitions, the immediate legal effect is on registration, exemptions, and the application of investment-company and issuer rules — not on tax qualification under the Internal Revenue Code.
The practical consequence is that investment managers and banks can more readily offer commingled vehicles (collective trusts, separate accounts) to qualifying 403(b) plans without registering those vehicles as investment companies, lowering operational and compliance costs and expanding available products. At the same time, sponsors who opt to qualify their plans by taking on fiduciary selection duties will need to adopt documented selection-and-monitoring processes that align with ERISA fiduciary standards and likely expect increased scrutiny and potential litigation risk.
The Five Things You Need to Know
The bill revises Investment Company Act §3(c)(11) to explicitly include certain 403(b) custodial accounts, collective trust funds, and separate accounts funded by 403(b) contributions in the list of exemptions from being treated as an investment company.
To qualify for the exemption, a 403(b) plan must either be ERISA Title I–covered, have the employer agree to act as the fiduciary selecting the plan’s investment menu, or be a governmental plan as defined in IRC §414(d).
For governmental 403(b) plans (IRC §414(d)), the bill requires that the employer, a plan fiduciary, or another authorized person review and approve each investment alternative before offering it to participants.
The bill amends Securities Act §3(a)(2) and Exchange Act §3(a)(12)(C) to align registration and offering exemptions with the new 403(b) carve-outs, enabling 403(b) arrangements that meet the conditions to avoid securities registration requirements applicable to registered offerings.
A conforming change to Exchange Act §12(g)(2)(H) updates the issuer-registration exclusion language so that the Exchange Act’s reporting thresholds and exemptions reflect the new §3(a)(12)(C) treatment of qualifying 403(b) plans.
Section-by-Section Breakdown
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Investment Company Act §3(c)(11): Add 403(b) custodial accounts and pooled vehicles
This provision replaces the current §3(c)(11) text to list, among other exempt categories, 403(b)(7) custodial accounts, collective trust funds maintained by banks containing only assets from qualifying retirement plans, and separate accounts funded solely by 403(b) contributions. The practical implication is that fund sponsors and banks can offer commingled vehicles to qualifying 403(b) plans without registering those vehicles as investment companies—provided the listed conditions are satisfied. That reduces a structural barrier that has limited pooled-investment access for many nonprofit and educational-plan sponsors.
Securities Act §3(a)(2): Treat certain 403(b) offerings like exempt plan arrangements
This subsection inserts 403(b) plans into the Securities Act’s list of exemptions from registration for plan-related offerings, subject to the same predicates used in the Investment Company Act amendment (ERISA coverage, employer fiduciary selection, or governmental-plan status) and the approval requirement for governmental-plan investment alternatives. Concretely, managers and issuers distributing investments to qualifying 403(b) plans can avoid offering-level registration and prospectus delivery obligations that would otherwise apply to public securities offerings.
Exchange Act §3(a)(12)(C): Align Exchange Act exemptions with new 403(b) treatment
The bill expands the Exchange Act’s exclusion for government and pension plan securities to cover qualifying 403(b) plans using the same three predicates and approval condition. That keeps Exchange Act coverage (for example, what counts as a covered 'issuer' or subject to certain reporting duties) consistent with the Investment Company and Securities Act changes, limiting surprise reporting or registration triggers for pooled vehicles sold into 403(b) plans.
Conforming amendment to Exchange Act §12(g)(2)(H)
This short clause updates cross-references in Exchange Act §12(g)(2)(H) to reflect the new clause numbering produced by adding 403(b) plans into the exclusion language. Although technical, it matters because §12(g) governs when an issuer must register under the Exchange Act; the conforming edit prevents the statutory mismatch that could otherwise pull pooled-plan vehicles into issuer-registration coverage unintentionally.
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Explore Finance in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Nonprofit and educational employers that sponsor 403(b) plans — they gain access to pooled investment vehicles (collective trusts and separate accounts) more commonly used in 401(a) plans, which can lower costs and simplify recordkeeping for large groups of participants.
- Plan participants (faculty, staff, charity employees) — they may see lower-fee investment options and a broader menu of institutional-class pooled products if their plan qualifies for the securities-law carve-out.
- Investment managers and banks that operate collective trust funds — they can expand distribution to qualifying 403(b) plans without having to register fund vehicles as investment companies or pursue costly offerings registration.
- Recordkeepers and platform providers — simplified product architecture and fewer securities-registration obstacles make it easier to bundle institutional products for 403(b) clients and potentially reduce operating costs.
Who Bears the Cost
- Employers that agree to act as fiduciaries for investment selection — they take on documented selection and monitoring obligations, and with that, heightened litigation and ERISA fiduciary exposure if options perform poorly or conflicts of interest arise.
- Plan fiduciaries and ERISA counsel — greater demand for documented selection processes, ongoing monitoring, and compliance support will raise administrative and legal costs, particularly for smaller employers lacking internal fiduciary infrastructure.
- Securities regulators and compliance teams at investment firms — product redesigns, new disclosure practices, and coordination between securities law teams and ERISA counsel will require compliance resources and interpretive guidance.
- Participants in plans where employers select investment menus without robust independent oversight — they bear increased risk of conflicts of interest if employers favor revenue-sharing or proprietary products, since the bill ties exemptions to employer selection in some cases.
Key Issues
The Core Tension
The central dilemma is balancing broader, lower-cost access to institutional pooled investments for employees of charities and educational institutions against the increased legal and compliance exposure imposed on employers and fiduciaries who must select and approve those investments; the bill eases securities-law barriers but leaves open who should bear the operational and legal burden of protecting plan participants.
The bill trades one regulatory friction for another. By shifting the path to exemption onto ERISA coverage or employer fiduciary action, it can expand pooled-investment access but also transfers selection responsibility — and legal risk — to employers and their fiduciaries.
The statutory language requires that employers or fiduciaries "review and approve" investment alternatives in some cases, but it does not articulate standards, timing, documentation, or the depth of due diligence required. That gap means plan sponsors, managers, and courts will need to develop practice and precedent about what constitutes adequate review and approval.
The interplay among the SEC, DOL, and IRS will be consequential and uncertain. These are securities-law changes, not tax or ERISA amendments, so the bill relies on existing ERISA fiduciary frameworks to police selection conduct.
But differing priorities across agencies — investor-protection obligations under securities laws versus prudence and loyalty obligations under ERISA — could produce inconsistent guidance or enforcement. Practically, managers and banks may redesign products to fit the new carve-outs, but smaller employers may decline to assume fiduciary selection duties, limiting the bill’s reach to those willing and able to take on the extra compliance and liability burden.
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