For almost a century, collective investment trusts (CITs) have played an important role in the markets. They were originally introduced in 1927. According to a 2020 study, they are now used in more than 70 percent of plans.¹
For the vast majority of their existence, CITs were available only in defined benefit (DB) plans. In 1936 CIT use expanded in DB plans when Congress amended the Internal Revenue Code to provide tax-exempt (deferred) status to CITs. CITs then gained widespread adoption in the 1950s when the Federal Reserve authorized banks to pool together funds from pensions, corporate profit-sharing plans, and stock bonus plans. The IRS also granted these plans tax-exempt status.
In the 1980s, 401(k) plans became primary retirement plans and mutual funds became the primary investment vehicle, due to daily valuation. In the 2000s, CITs gained significant traction in defined contribution (DC) plans due to increased ease of use, daily valuation, and availability. During this time, CITs were also named as a type of investment that qualifies as a qualified default investment alternative (QDIA) under the Pension Protection Act of 2006.
From 2011 to 2018, total assets in CITs grew by approximately 64 percent. During which their share of 401(k) assets reached nearly 21 percent, or approximately $1.5 trillion.²
The advantages of CITs are plentiful:
• Lower operational and marketing expenses
• A more controlled trading structure compared to mutual funds
• They’re exempt from registration with SEC, thereby avoiding costly registration fees
On the other hand, CITs are only available to qualified retirement plans and they may have higher minimum investment requirements.
While CITs have traditionally only been available to large and mega-sized plans, continued fee litigation – as well as increased CIT transparency, reporting capabilities and enhanced awareness – has amplified the allure of CITs to plan sponsors across all plan sizes. However, CITs haven’t been widely available to all plans — until now.
