For many retirement plan sponsors, the decision of which investment vehicle to select for their participants is one of their most important — and most arduous.
Collective investment trusts (CITs), also known as collective trust funds, are pooled investment funds designed exclusively for qualified retirement plans. CITs are being added to a growing number of retirement-savings programs.
In this blog, I seek to provide insight for plan sponsors on why CITs have become more popular in recent years. Below are the top three reasons for selecting a CIT for your retirement plan.
1. Customized fees and optional revenue-sharing
CITs may offer many opportunities to structure fees based on plan needs. The flexibility that CITs have in how they charge investment management fees permits tailoring of the investment fees paid by CIT participants, and may even result in cost savings. This gives plans the ability to customize plan participant recordkeeping arrangements and fees.
Many CITs also offer customized share classes that may allow for varying levels of revenue-sharing based on the plan’s needs. These custom share classes also allow for the negotiation of fees for larger plans and for larger relationships, including both platform and consultant relationships.
CITs can offer:
- Customizable fees that can be negotiated for larger plans with economies of scale.
- The potential for cost savings that are passed on to plan sponsors and participants.
- Share classes with zero revenue-sharing and other classes with multiple levels of revenue-sharing.
- Share classes where all fees and expenses are netted from the daily traded net asset value (NAV).
The structure of CITs offers several potential efficiencies. For example, since retirement plans/participants are generally working toward a long-term goal — retirement — they tend to be less reactive to market noise and more likely to “be in it for the long haul” rather than trading in and out of their investments. Therefore, CITs may see more consistent flows, and may not have to raise cash as often (i.e. less frequent selling of securities) in order to meet redemptions.