What You Need to Know

It’s been more than a decade since we first published a paper on the emergence of collective investment trusts (CITs) as a logical choice for many defined contribution (DC) plans. In that time, plan sponsors have increasingly used CITs to lower plan costs and provide transparency to participants. With pressure mounting on employers to offer participants reasonable, cost-efficient investment options and also fulfill their fiduciary duty in a world of increasing litigation, CIT use continues to grow rapidly.

CIT market share

of target-date solutions in 2018

Share of DC plans

using CITs in 2018

Number of CITs

for which Morningstar has data as of March 2019

The use of collective investment trusts (CITs) is on the rise. In 2017, 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

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

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:

  • Do we have a qualified retirement plan subject to ERISA regulations?
  • Does our recordkeeper offer CITs on the platform?
  • Is there room for cost improvements in our existing investment vehicles?
  • Could custom vehicles be right for our plan?
  • Would the reduction in fees be worth it?

*The Cerulli Report, U.S Defined Contribution Distribution 2017: Re-Evaluating the Use of CITs in DC Plans

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