What is a Collective Investment Trust (CIT)? And How it Differs from a Mutual Fund
As a retirement plan sponsor or committee member, you're probably familiar with mutual funds as the go-to investment option in most 401(k) and 403(b) plans. But you may have also come across Collective Investment Trusts, or CITs, and wondered: How are theses different? Are they better? Should we consider them for our plan?
Let's take a closer look at CITs, how they compare to mutual funds, and what you need to know when evaluating them for your retirement plan lineup.
What is a Collective Investment Trust (CIT)?
A Collective Investment Trust (CIT) is a pooled investment vehicle, similar to a mutual fund, that's sponsored by a bank or trust company. but unlike mutual funds, CITs are only available to qualified retirement plans (like 401(k)s, 403(b)s, and certain 457 plans) and not sold to the general public.
Because of this, CITs are regulated by banking authorities, such as the Office of the Comptroller of the Currency (OCC), rather than the SEC.
CITs vs. Mutual Funds: What's the Difference?
Here's a quick side-by-side comparison to help clarify the key differences:
| Feature | Mutual Funds | CITs |
|---|---|---|
|
Who Can Invest? |
Anyone (individuals or institutions) | Only qualified retirement plans |
|
Regulated By |
SEC | OCC or state banking regulators |
|
Disclosure |
Prospectus and public figures | Trust documents and fact sheets (not public) |
|
Ticker Symbol? |
Yes – Searchable | Usually no |
|
Pricing |
Daily Net Asset Value (NAV) | Also uses daily NAV |
|
Fees |
May include SEC and marketing expenses | Typically lower- no 12b-1 or distribution costs |
|
Customization |
Limited | Often customized by plan size or ivestment strategy |
Why are more plans using CITs?
One word: Cost.
Because CITs aren't required to register with the SEC or engage in public marketing, they often carry lower expense ratios than comparable mutual funds. In fact, it's common for CITs to be managed by the same portfolio managers using the same strategies as a mutual fund, just with reduced overhead.
Real-World Example:
A small-sized 401(k) plan with $5 million in assets was using a target-date mutual fund with an average expense ratio of 0.45%. By switching to the CIT version of the same strategy, they secured a 0.30% expense ratio, savings 15 basis points annually. Over time, those savings can significantly boost participant account balances.
How Do CITs Work Operationally?
While the structure behind the scenes is different, the participation experience is nearly identical to a mutual fund:
• Daily Pricing: CITs are priced once a day, just like mutual funds.
• Statements: CITs appear on participant statements and online portals with clear naming and balances.
• Trading: Transactions (buy/sell) typically follow the same trade cycle as mutual funds.
To most plan participants, CITs look and feel just like mutual funds.
Things to Keep in Mind
CITs have plenty of upside—but also a few nuances you’ll want to consider:
• Transparency: No public prospectus or ticker symbol means you’ll need to rely on provider fact sheets and trust documents for info.
• Education: Because they’re less familiar, you may need to explain to participants what a CIT is and why it’s in the plan.
• Access: Not all recordkeepers or custodians support CITs, and some CITs may have investment minimums.
• Documentation: Be sure to review and retain the participation agreement and declaration of trust for any CITs you offer.
Your Fiduciary Role
As a fiduciary, your responsibility is to select, monitor, and document plan investments in the best interest of participants. While CITs can be a great low-cost option, they still require the same level of due diligence:
• Review performance and fees regularly
• Understand the underlying strategy and manager
• Benchmark against peers
• Maintain written records of your evaluations
Bottom Line
CITs are becoming more common in retirement plan lineups for a reason—they offer cost savings, flexibility, and institutional-quality strategies. If your plan has the size and structure to support them, it’s worth exploring CITs as part of your investment menu.
Want help evaluating whether CITs make sense for your plan? Let’s talk—we can walk through the pros, cons, and how to make an informed decision that supports your fiduciary duties.
Scott Higgins | AIF ®, CFP®, CPFA®, NSSA®
Financial Advisor
Since 2012 at Rose Street, Scott has been responsible for helping the firm’s individual wealth management clients with income strategies for retirement and consulting with employers with their employee retirement plans. In free time, he enjoys golf, biking, skiing, cooking, and traveling. Fun Fact, Scott has a hobby of filling growlers with coins!
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