Ten years ago, we were already looking ahead to what we thought would be the next trend in DC plans. And in fact we wrote an entire white paper on the fact that CITs would really become the popular vehicle and the vehicle of choice for DC plans.

They’ve really come a long way since the early days of CITs. Now that they trade just like mutual funds, they offer great fee advantages, which is really important in today’s world of fiduciary pressures. And they’re very easy and transparent for participants.

In the early days of CITs, they were really only available for stable value funds and some passive strategies. But now, CITs are available in a wide range of asset classes. In fact, almost every single asset class offers CITs.

A great example of an investment option where CITs have really taken off is in target-date funds. Clearly this is the fastest-growing investment option within DC plans, given the fact that it’s really the default option of choice.

What we normally recommend as a best practice is for the plan sponsor or consultant to work together to determine what investment strategy they’re looking for first. So, investment strategy first…

And then secondary to that, is to determine what vehicle that plan is eligible for. Depending on the size of the investment, there may be an opportunity to use a mutual fund, a CIT or a separate account, and from there, the best thing to do is for then to take a look at the fees, and that’s where there could be an availability of lower fees for the plan sponsor.

Some plan sponsors might push back and say that CITs aren’t registered with the SEC, and therefore, they’re not as regulated as mutual funds. But in fact, I’d push back on that, because CITs are very regulated by state and federal banking authorities, the Office of the Comptroller of [the] Currency, and they’re actually also governed by ERISA.

The only real difference between mutual funds and CITs is that, because they’re offered to qualified retirement plans only, there is some additional paperwork in the form of an adoption agreement that needs to be done so that the CIT can ensure that the investors, the plans investing in the CITs, are actually qualified plans.

Once the initial setup, with the trust company of the CIT is done, they trade and act very similarly to mutual funds, and in fact, they have all the operational efficiencies of mutual funds, with many of the pricing advantages of separate accounts.

Clients Only

The content you have selected is for clients only. If you are a client, please continue to log in. You will then be able to open and read this content.