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The Rise of Collective Investment Trusts

Research is showing that the use of Collective Investment Trusts (CITs) has grown 68% across the industry since 2008. The increase is due to several factors, including 1) CITs may be less expensive relative to their mutual fund counterparts and 2) many providers have lowered the minimum investment, which has made them more accessible to a broader spectrum of plans.

A CIT is similar to a mutual fund in that it is a “pooled investment.” However, unlike mutual funds, CITs are not regulated by the Securities and Exchange Commission (SEC) but are subject to banking regulations enforced by the Office of the Comptroller of the Currency (part of the US Treasury). CITs are only available as an investment option within employer-sponsored retirement plans; therefore, they are not eligible for rollover to an Individual Retirement Account (IRA). They do not have prospectuses (like mutual funds) but instead have fact sheets. Also, they do not have ticker symbols, so daily performance may not be available from common sources, such as Morningstar.

Plan Sponsors should consider the following when deciding whether a CIT is appropriate for their plan:

  • The impact to costs should be carefully examined. While the investment expense may be lower, the impact to revenue sharing could be more significant. The CIT version could be more expensive on a net of revenue sharing basis.
  • Determine if the service provider will assess any additional administrative costs.
  • Since CITs do not have ticker symbols, will participants voice concerns that they cannot easily track performance? Verify with the service provider that CIT pricing is easily attainable for participants.
  • Ensure that the redemption fees and any other policies are understood.