The collective investment trust (CIT) is no longer the retirement industry’s best-kept secret.
CITs are pooled, tax-exempt investment vehicles sponsored and administered by a bank or trust company that also acts as the trustee. CITs comingle assets from eligible investors into one private investment portfolio with a specific strategy. Currently, CITs are available for DC and defined benefit (DB) plans, excluding most 403(b), 457(b) and 457(f) plans. They are not currently permissible investment vehicles for individual retirement accounts (IRAs). Today, much of the exciting growth and potential for greater CIT implementation is occurring in the DC market.
While incorporating CITs in defined contribution (DC) plans, primarily 401(k) plans, is hardly a new idea, it has started to gather momentum recently. CIT proponents have long forecasted CITs would increase their DC market share, while the cynics claimed that CITs have been touted as “the next big thing” for years.
It finally seems like we have reached a tipping point. In 2018, total CIT assets reached slightly greater than $3 trillion.1 Moreover, during the same period, their share of 401(k) assets reached nearly 28%, or approximately $1.5 trillion,1 primarily at the at the expense of mutual funds, which, saw their share of 401(k) assets decline to represent less than half of total 401(k) assets (48%).2
For retirement plan advisors, CITs should be a key consideration.
CITs are heavily regulated. However, since they are not registered under the Investment Company Act of 1940 they are principally overseen by the Office of the Comptroller of the Currency or state banking regulators. Additionally, the sponsoring trustee of a CIT, a bank or trust company, is committed to acting in the best interest of unit holders because it is bound by the fiduciary standard under the Employee Retirement Income Security Act of 1974 (ERISA).
CITs are not newcomers to the retirement landscape. Although first launched in 1927, they did not become broadly used until the 1950s when Congress first allowed banks to combine assets from stock bonus plans, pensions and corporate profit-sharing plans.3 CITs are not necessarily new vehicles to plan sponsors either as they have long been used by DB plans and large DC plans.
When the National Securities Clearing Corporation (NSCC) added CITs to its mutual fund trading platform in 2000 they became quickly and widely transacted. They received another boost in 2006 when the Pension Protection Act was signed into law, requiring DC plan sponsors to invest unallocated 401(k) assets into qualified default investment alternatives (QDIAs), most commonly target-date funds (TDFs).
TDFs are one obvious example where CITs have experienced an increase in the amount of assets under management. In 2018, assets in target-date CITs increased by approximately $30 billion to reach an estimated $662 billion.4 This growth reflected the DC market’s willingness to embrace a less familiar investment vehicle, relative to a mutual fund, to access lower pricing. Robust growth in target-date CITs has spilled over into single-asset-class options on the core menu, with advisors realizing that if they are comfortable with a target-date CIT, they also can consider the vehicle in other investment categories.
Learn more about the many advantages of considering CITs as investment vehicles in defined benefit and defined contribution plans, what a CIT is (and what it isn’t), the benefits of CITs, the factors that are driving their adoption, and myths surrounding CITs. Download our thought leadership paper: Collective Investment Trusts: An Important Piece in the Retirement-Planning Puzzle.
This material is for educational purposes only and is not intended as an offer, recommendation or solicitation for the sale of any financial product or service or as a determination that any investment strategy is suitable for a specific investor. There is no assurance that any investment strategy will be successful. The information in this material has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Opinions, estimates and projections constitute the judgment of Wilmington Trust and are subject to change without notice.
There is no assurance that any investment strategy will be successful. Investing involves risk and you may incur a profit or a loss.
Wilmington Trust, N.A. Collective Investment Funds (“WTNA Funds”) are bank collective investment funds; they are not mutual funds. Wilmington Trust, N.A. serves as the Trustee of the Wilmington Trust Collective Investment Trust and maintains ultimate fiduciary authority over the management of, and investments made in, the WTNA Funds. The WTNA Funds and units therein are exempt from registration under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended. Investments in the WTNA Funds are not deposits or obligations of or guaranteed by Wilmington Trust, and are not insured by the FDIC, the Federal Reserve, or any other governmental agency. The WTNA Funds are commingled investment vehicles, and as such, the values of the underlying investments will rise and fall according to market activity; it is possible to lose money by investing in the WTNA Funds. Participation in Collective Investment Trust Funds is limited primarily to qualified defined contribution plans and certain state or local government plans and is not available to IRAs, health and welfare plans and, in certain cases, Keogh (H.R. 10) plans.
1 Source: Cerulli Associates, The Cerulli Report—
The State of U.S. Retail and Institutional Asset Management 2019: Recognizing Opportunity Across Client Segments
2 Source: Cerulli Associates, The Cerulli Report—
U.S. Defined Contribution Distribution 2019: Opportunities for Differentiation in a Competitive Landscape
4 Morningstar, 2019 Target-Date Fund Landscape