Collective investment trusts (CITs) are rapidly gaining market share in 401(k) plans, increasingly replacing traditional mutual funds. Over the past 5–10 years—especially in advisor-sold retirement plans—CITs have become far more common. Their appeal lies in lower fees, greater pricing flexibility, and a fiduciary structure that allows trustees, often banks or state-chartered trust companies, to serve as ERISA fiduciaries—offering plan sponsors added protection but also introducing new oversight responsibilities.
This shift has been driven by recordkeepers and advisory firms pooling plan assets, making it more cost-effective to create and manage CITs. For large target-date or multi-manager strategies, CITs provide similar underlying investments as mutual funds but at significantly lower expense ratios.
However, unlike mutual funds, CITs can present challenges: less transparency, multiple share classes with varying fees, limited public disclosures, and more complex governance requirements. Because trustees carry fiduciary obligations and potential regulatory exposure, plan sponsors must carefully evaluate their governance structures and documentation.
In short, while CITs offer compelling cost advantages and continue to gain traction in the defined contribution space, plan sponsors must ensure strong due diligence, fully understand all-in costs, and document their monitoring process.
Read more insights in Fred Barstein’s latest WealthManagement.com article, “Why CITs Are Overtaking Mutual Funds in 401(k) Plans.”
