Is Your Plan’s Investment Lineup As Good As It Could Be?

FMN_C14_Blog_Pulse Image.jpg

Is Your Plan’s Investment Lineup As Good As It Could Be?

CITs Can Deliver Considerable Cost Savings and Fiduciary Support

Minimizing retirement plan fees is critical to helping participants achieve their long-term savings goals. With a heightened focus on a lack of retirement readiness and fee litigation, it’s more important than ever for plan sponsors and fiduciaries to proactively look for ways to lower retirement plan costs, particularly when it comes to reducing investment fees.

But where to begin? Plan sponsors can start by assessing the plan’s existing investment lineup. Is it as good as it could be? Are there lower-cost share classes available? There may be alternative options that offer lower expenses and fees, but have the same investment objectives and underlying funds.

 In fact, plan sponsors may find that the lowest-cost share class may not be a mutual fund share class at all — it may actually be a collective investment trust (CIT). To that end, CITs may be an attractive solution for plan sponsors seeking to offer a lower-cost investment option for participants.

 What is a CIT?

Collective investment trusts (CITs), also known as commingled trusts or collective trust funds, are generally offered by banks and trust companies. CITs are similar to mutual funds in that investor money is pooled together and managed by professional money managers. Like mutual funds, CITs are also available in a wide variety of asset classes — both passively and actively managed — including stocks, bonds, stable value and alternatives. Additionally, CITs have become popular in target date funds (TDFs).[1]

 There are some noteworthy differences between CITs and mutual funds. Whereas mutual funds are available to all investors, CITs are typically offered to large pension plans that meet the minimum threshold.  Since CITs are designed exclusively for retirement plans, they aren’t subject to the same regulatory requirements as mutual funds.

A cost-effective investment solution

 With recent fee-related lawsuits shining a spotlight on retirement plan fees and fiduciary responsibility, the cost benefits alone make CITs worthy of consideration. Typically, CITs tend to be more cost-effective and may offer flexible pricing. These cost savings are due to a variety of factors[2],[3]:

  1. CITs have low overhead costs, resulting in lower management fees from retail investments.

  2. Combined assets are managed in a single fund, which creates scale and cost efficiencies. It also helps reduce reporting and administrative fees.

  3. CITs are available only inside employer-sponsored retirement plans. As such, they are not allowed to advertise to the public, which minimizes marketing costs.

  4. CITs aren’t regulated by the SEC and are not required to file prospectuses, shareholder reports or proxy statements, so compliance costs are lower.

  5. Typically, CITs offer tiered pricing arrangements, allowing issuers the ability to deliver lower fees as invested assets grow. This allows retirement plans to leverage scale while capturing cost reductions. Conversely, institutional mutual fund shares, for example, may be available at the same cost regardless of plan size.

  6. CITs also offer plan sponsors an opportunity to negotiate custom fee arrangements, mutual funds do not.

  7. CITs are not publicly traded, therefore, they aren’t available to retail investors.

Clearly, the cost savings inherent to CITs are passed on to plan sponsors and participants in several ways. In fact, plans can reap tremendous savings benefits — an average of 39%[4] — simply by swapping the mutual fund share class out of the investment lineup and maintaining all of the underlying funds in the equivalent CIT. Another benefit: CITs provide investment flexibility. For example, they are designed to hold other CITs as underlying investments, whereas mutual funds cannot. Again, that results in additional savings opportunities.

 Another benefit of CITs is that their issuing banks and trust companies serve as fiduciaries to the plans that invest in them. As such, they fulfill similar fiduciary requirements as plan sponsors when it comes to acting solely in the best interests of plan participants and their beneficiaries.

Due to their cost savings and built-in flexibility, CITs have become a popular option for defined contribution (DC) plan sponsors of all sizes. Choosing cost-effective investment solutions like CITs can result in significant savings for plans and participants.   

Financial Management Network has helped hundreds of retirement plan sponsors review and assess the appropriateness of their plan investments. We can help you determine if the cost-savings and efficiencies of CITs are a good fit for your plan and participants, while building a stronger lineup of investment offerings designed to help you meet your fiduciary obligations and improve retirement readiness.


[1] The Coalition of Collective Investment Trusts. “CIT Myths and Facts.” April 2015.

[2] Investopedia. Entry for “Commingled Trust Fund.” February 2018.

[3] Iacurci, Greg. InvestmentNews. “Collective investment trusts getting more attention from 401(k) advisers.” June 2017.

[4] Wilshire Trust CITs available to RPAG member firms.