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.
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?