Recent notable court cases involving companies such as Ameriprise Financial and Lockheed Martin have addressed an often overlooked retirement plan option, which thanks to a growing focus on fee reduction, is picking up traction with plan sponsors. Settlement agreements in both the Ameriprise and Lockeed Martin cases both stipulated plan sponsors consider using collective investment trusts in their plans going forward. CITs are often less expensive to create and maintain and may be more flexible than their mutual fund counterparts given that they are subject to a different regulatory framework. While this may be a benefit to their fee structure, it can also be challenging because CITs are not broadly understood and often suffer misconceptions when compared to mutual funds. Below are the most common misinterpretations and frequently asked questions by fiduciaries.
What are CITs? They are pools of securities, which are sponsored by a bank or trust company, and are designed exclusively for qualified employee benefit plans like 401(k)s and pension plans. They look and feel like mutual funds, but haven’t historically been as broadly available — especially for small and mid-sized 401(k) plans. As the retirement plan industry evolves, so does the structure of a plan’s investment menu, including CITs.
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