Collective Investment Trusts (CITs): What They Are and How They Can Benefit Your Retirement Savings.Submitted by GRP Advisor Alliance on July 10th, 2018
CITs* are pooled investment vehicles sponsored and maintained by a trust company who also serves as the trustee. While mutual funds are commingled investment vehicles maintained by an asset management company and are made available to retirement plans as well as individual investors, CITs are only offered to qualified retirement plans.
Unlike mutual funds which are registered with the Securities and Exchange Commission, CITs are regulated by the Office of the Comptroller of the Currency. Since CITs are not required to register with the SEC, investors can take advantage of lower costs of doing business in comparison to traditional mutual funds.
CITs offer similar benefits and advantages to mutual funds, but generally can do so at a lower cost. This cost savings makes CITs attractive options for plan sponsors carrying out their fiduciary responsibilities of keeping fees reasonable. Available only to certain ERISA plans, and historically designed for qualified benefit plans, CITs are evolving into a popular choice for defined contribution plans of all sizes.
Figure 1: Comparing Expense Ratios for CITs vs. Mutual Funds
CITs, offered through your company’s retirement plan, can provide a wide variety of investment strategies and in some cases can mirror an existing mutual fund. According Callan Assoicates’ most recent survey, Defined Conitributions Trends Survey, some 65% of surveyed defined contribution plans offered at least one CIT in 2017, up from 44% in 2011. DST kasina expects retirement assets in CITs to reach $3 trillion by the end of 2018 which is up significantly from $1.9 trillion in 2015.
As CIT popularity continues to grow, you will see a large array of CITs becoming available as your retirement plan investments. If you are interested in learning more about CITs in general, or about CITs that may be already available in your plan, contact your plan provider or advisor.
* “Collective Investment Trusts are tax-exempt, pooled investment vehicles maintained by a bank or trust company exclusively for qualified retirement plans that are exempt from federal income tax. An investment in a CIT can only be made if all of the requirements for participation are met and the investment is authorized by the plan sponsor or other named fiduciary with authority to direct plan investments. Plan fiduciaries should carefully consider the provider’s available investment universe, the plan’s own investment policy statement (IPS), trading and operational considerations, market trends, the demographic makeup of the plan’s participants and the current regulatory environment.”