Collective investment trusts (CITs) have steadily gained traction in retirement plan lineups, and for good reason. A recent article from the International Foundation of Employee Benefit Plans breaks down why more plan sponsors and advisors are taking a closer look.
Unlike mutual funds, CITs are designed specifically for retirement plans. They often carry lower fees, thanks to reduced regulatory burdens and a pooled structure managed by banks or trust companies. That cost efficiency is one of the biggest reasons defined contribution plans have shifted assets in this direction. Over the past decade, CITs have gone from holding 13% of DC assets to nearly 30%, according to the IFEBP article.
While CITs may look similar to mutual funds from the outside—often sharing the same underlying investment strategy—the legal structure is different. CITs aren’t subject to SEC oversight. Instead, they fall under banking regulations, which means fewer disclosure requirements and more variability in terms. Because CITs are regulated differently than mutual funds, they can bring added complexity for fiduciaries, especially when evaluating whether a specific CIT aligns with the plan’s investment policy.
For plan sponsors, the regulatory differences highlight the need to go beyond a simple comparison of expense ratios.
One of the key reminders from the IFEBP blog is to identify whether an investment is a CIT in the first place. That detail isn’t always obvious, and advisors don’t always flag it. Once confirmed, the next step is to review the trust agreement carefully. Terms can vary widely, particularly when it comes to pricing, reporting, and the provider’s flexibility in changing investment parameters.
Legal counsel may be necessary here. While larger plans might have the leverage to negotiate terms, smaller plans need to weigh whether the cost of legal review outweighs the potential savings.
Finally, sponsors shouldn’t assume these trust documents are set in stone. Some terms are negotiable, and pushing for better alignment with the plan’s fiduciary interests can make a meaningful difference.
As CITs continue to expand their footprint in retirement plans, fiduciaries need to apply the same level of scrutiny they would to any other investment vehicle—if not more. A thoughtful, well-documented evaluation process remains the best defense.
