Introduction
As investors look for cost-effective and flexible options for growing their retirement savings, Collective Investment Trusts (CITs) are gaining popularity—especially within 401(k) and other employer-sponsored retirement plans. While CITs are not as well-known as mutual funds, they often offer similar benefits with lower fees and increased customization. If you’re exploring ways to enhance your retirement portfolio or simply want to understand all your plan options, it’s important to know what a CIT is and how it works.
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What Is a Collective Investment Trust?
A Collective Investment Trust (CIT) is a pooled investment vehicle that is managed by a bank or trust company. It combines the assets of multiple retirement plans and invests them in a common portfolio based on a specific strategy or objective—much like a mutual fund.
However, there are a few key differences:
- CITs are not regulated by the Securities and Exchange Commission (SEC) like mutual funds.
- They are typically only available to qualified retirement plans, such as 401(k)s or pension plans—not individual retail investors.
- CITs are governed by the Office of the Comptroller of the Currency (OCC) and other banking regulators.
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How Do CITs Work?
CITs function by pooling money from various retirement accounts and investing it collectively in assets like:
- Stocks
- Bonds
- Real estate
- Other investment strategies
They are managed by professional asset managers, and the goal is to achieve long-term growth, income, or capital preservation, depending on the fund’s objective.
Employers choose CITs as part of the investment lineup in their retirement plans, giving employees an option to invest in these funds through their 401(k) contributions.
Benefits of CITs
- Lower Costs
One of the biggest advantages of CITs is their lower expense ratios. Without the marketing, distribution, and regulatory costs of mutual funds, CITs can be significantly cheaper for plan participants. - Customizable Strategies
Employers can work with fund managers to create tailored investment strategies that align with their retirement plan objectives. - Diversification
Like mutual funds, CITs invest in a wide range of assets, providing instant diversification for investors. - Transparency and Simplicity
While they aren’t regulated by the SEC, CITs still provide fact sheets and regular performance updates, giving plan participants insight into holdings, performance, and risk level. - Fiduciary Oversight
CITs are overseen by plan fiduciaries and bank trustees, ensuring the fund is operated in the best interest of its investors.
Limitations of CITs
- Lack of Public Access
CITs are not available to retail investors—only through qualified retirement plans like 401(k)s. - Limited Information Online
Because CITs aren’t registered with the SEC, they don’t appear in public databases like Morningstar in the same way mutual funds do. - Less Liquidity
Unlike mutual funds, which are priced once per day and widely traded, CITs can have more limited trading windows and less frequent pricing.
CITs vs. Mutual Funds: Key Differences
| Feature | CITs | Mutual Funds |
|---|---|---|
| Regulation | OCC and state banking authorities | SEC |
| Investor Access | Institutional (retirement plans) | Retail and institutional investors |
| Fees | Typically lower | Can be higher |
| Customization | High (for plan sponsors) | Standardized |
| Daily Trading | Sometimes limited | Typically available daily |
Conclusion
Collective Investment Trusts (CITs) are a smart, cost-effective option for retirement investors—especially those participating in employer-sponsored 401(k) plans. With lower fees, customizable investment strategies, and professional management, CITs are quickly becoming a favored alternative to traditional mutual funds in the retirement space.
While they may not be as familiar as mutual funds, CITs offer significant benefits for long-term investors looking to grow their retirement savings efficiently. As always, it’s important to review your plan’s investment options and speak with a financial advisor to determine what works best for your goals.
