What’s Old Is New Again: Collective Investment Trusts Reduce DC Plan Costs
 

What You Need to Know

Collective Investment Trusts (CITs) have continued to grow in popularity since we first wrote about their relevance in defined contribution plans more than 10 years ago. In that time, plan sponsors have used CITs to lower plan costs and increase operational efficiency. As employers adapt to changing market conditions, the need to bring participants cost-efficient investment options that offer transparency is more important than ever.

CIT market share

of target-date solutions in 2019

Share of DC plans

using CITs in 2018

Number of CITs

for which Morningstar has data as of March 2020

The use of collective investment trusts (CITs) is on the rise. In 2019, it was estimated that total CIT assets were $3.1 trillion. Plan sponsors and their advisors like CITs because they combine the cost savings of a separately managed institutional account with the convenience of a mutual fund. That may explain the growth of CITs versus mutual funds in defined contribution (DC) plans.

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CITs are a versatile, cost-efficient and competitive alternative to mutual funds for DC plans. In addition to delivering customizable solutions to retirement plans, CITs offer these benefits:

1. Low cost and transparency – CITs generally cost less than mutual funds and some have no or low minimum requirements

2. Operational efficiency – CITs are just as easy to manage as mutual funds

3. Easy access to information – Plan sponsors and participants can access daily information about a strategy’s pricing and performance. Some CITs now have ticker symbols available

In deciding whether a CIT is right for a plan, plan sponsors and their advisors should evaluate the best investment strategy for the plan first. Once that has been accomplished, they can select the best available vehicle based on the size of the plan, the eligibility of the plan and the fees associated with the vehicle.

So, are CITs right for your plan? Ask yourself the following:

  • Is it a qualified retirement plan subject to ERISA regulations?
  • Are CITs offered on the recordkeeper’s platform?
  • Is there room for cost improvements in the existing investment vehicle?
  • Could custom vehicles be right for the plan?
  • Would the reduction in fees be worth it?

Past performance, historical and current analyses, and expectations do not guarantee future results. There can be no assurance that any investment objectives will be achieved. The information contained here reflects the views of AllianceBernstein L.P. or its affiliates and sources it believes are reliable as of the date of this publication. AllianceBernstein L.P. makes no representations or warranties concerning the accuracy of any data. There is no guarantee that any projection, forecast or opinion in this material will be realized. Past performance does not guarantee future results. The views expressed here may change at any time after the date of this publication. This document is for informational purposes only and does not constitute investment advice. AllianceBernstein L.P. does not provide tax, legal or accounting advice. It does not take an investor’s personal investment objectives or financial situation into account; investors should discuss their individual circumstances with appropriate professionals before making any decisions. This information should not be construed as sales or marketing material or an offer or solicitation for the purchase or sale of any financial instrument, product or service sponsored by AB or its affiliates.

The views expressed herein do not constitute research, investment advice, or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI.

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