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What is a CIT (Collective Investment Trust)?
A Collective Investment Trust is a pooled investment vehicle used primarily by retirement plans (like 401(k)s or pensions). It functions similarly to a mutual fund but is only available to institutional investors, not individual retail investors.
🔍 Key Features of CITs
| Feature | Description |
|---|---|
| Investor Base | Only institutional (e.g., 401(k) plans, pensions) |
| Regulation | Regulated by the Office of the Comptroller of the Currency (OCC) and state banking regulators, not the SEC |
| Costs | Lower fees than mutual funds (no 12b-1 fees or marketing costs) |
| Structure | Offered by banks or trust companies |
| Transparency | Often less public data than mutual funds |
✅ Pros of CITs
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Lower expenses
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Customizable strategies for plan sponsors
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Tax-deferred like mutual funds in retirement accounts
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No daily NAV required — prices calculated similarly but not publicly traded
❌ Cons of CITs
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Lack of liquidity (not traded on public exchanges)
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Limited transparency (compared to mutual funds)
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Only available through employer-sponsored plans
📊 CIT vs Mutual Fund (Quick Comparison)
| Feature | CIT | Mutual Fund |
|---|---|---|
| Investors | Institutional only | Retail & institutional |
| Regulation | OCC | SEC |
| Expense Ratio | Lower | Typically higher |
| Transparency | Lower | High (daily NAV, prospectus) |
| Availability | 401(k), 403(b) plans | Public platforms (e.g., Fidelity, Vanguard) |
📘 Example
A 401(k) plan might offer a Target Date CIT instead of a Vanguard Target Retirement Fund. It tracks the same benchmark but at lower cost due to no SEC filing or distribution expenses. cit in finance
cit in finance
🏦 1. How CITs Work
CITs pool the assets of multiple qualified retirement plans into a single investment vehicle managed by a trustee, usually a bank or trust company. These trustees then outsource investment management to institutional asset managers like BlackRock, Fidelity, or Vanguard. cit in finance
The trust document defines:
The fund’s objective (e.g., growth, income, capital preservation)
Permissible investments (stocks, bonds, ETFs, etc.)
Rebalancing rules
They operate under ERISA (Employee Retirement Income Security Act) if used in retirement plans.
🧮 2. Pricing & Valuation
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Unitized pricing (similar to NAV in mutual funds)
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Valuation typically occurs daily, but not published publicly like mutual funds
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Investors can buy/sell units (not shares)
CITs don’t trade on exchanges; they settle through trust platforms like NTSA, Fidelity, or Empower.
💼 3. Where Are CITs Used?
Primarily in employer-sponsored retirement plans, such as:
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401(k) and 403(b) plans
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Corporate pensions
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Government retirement systems
📈 4. Why CITs Are Gaining Popularity
CITs are rapidly replacing mutual funds in 401(k) lineups due to:
| Benefit | Explanation |
|---|---|
| Lower fees | No SEC registration, no marketing, no retail distribution costs |
| Customizability | Plan sponsors can negotiate strategies or blends (e.g., custom target date CITs) |
| Scale | Institutional pricing benefits as plan assets grow |
| Fiduciary appeal | Plan fiduciaries may prefer lower-fee investments for ERISA compliance |
According to recent data:
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Over 70% of 401(k) plans now include at least one CIT
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CIT assets under management have crossed $5 trillion globally cit in finance.
🧑💼 5. Who Manages CITs?
Top managers include:
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Fidelity Institutional
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T. Rowe Price
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BlackRock
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Vanguard
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Northern Trust
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State Street Global Advisors (SSGA)
Banks like Wells Fargo, Bank of New York Mellon, and UMB Bank act as trustees. cit in finance
📜 6. Compliance & Regulation
CITs are:
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Not registered with the SEC (unlike mutual funds)
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Governed by the Office of the Comptroller of the Currency (OCC)
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Monitored by state banking departments
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Subject to ERISA if used in qualified retirement plans
🔄 7. CITs vs Other Investment Vehicles
| Feature | CIT | Mutual Fund | ETF |
|---|---|---|---|
| Available to | Institutional only | Public | Public |
| Exchange-Traded | ❌ No | ❌ No | ✅ Yes |
| SEC Registered | ❌ No | ✅ Yes | ✅ Yes |
| Expense Ratio | Lower | Moderate | Low |
| Intraday Liquidity | ❌ No | ❌ No | ✅ Yes |
| Custom Strategy Option | ✅ Yes | ❌ No | ❌ No |
📘 8. Types of CIT Strategies
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Target Date CITs
Popular in 401(k)s, automatically adjust asset mix as retirement nears
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Stable Value CITs
Provide capital preservation with moderate interest rates
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Passive Index CITs
Track indices like S&P 500, with lower expense ratios than mutual funds
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Actively Managed CITs
Aim to beat benchmarks with dynamic strategies
📄 9. How to Access CITs
You typically access CITs through:
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Plan recordkeepers like Fidelity, Empower, Vanguard, Alight
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Financial advisors managing retirement plans
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Third-party administrators (TPAs)
CITs are not listed on public platforms like Robinhood, Schwab, or TD Ameritrade.
📌 10. Who Benefits from CITs?
| Role | How They Benefit |
|---|---|
| Plan Sponsors | Lower fees, better ERISA alignment, customization |
| Participants | Higher returns from lower costs, same risk profile |
| Advisors | Can negotiate better lineups with institutional pricing |
| Asset Managers | Fewer disclosure burdens, more flexibility |
🔍 11. Tax Implications of CITs
✅ Tax-Deferred Accounts Only
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CITs are not subject to capital gains taxes annually when held in retirement accounts (like 401(k), 403(b), pensions).
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Investors don’t receive taxable distributions (like with mutual funds). cit in finance
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Gains, dividends, and interest are tax-deferred until retirement withdrawals.
🔒 CITs cannot be held in taxable brokerage accounts.
📊 12. Performance Reporting & Transparency
While CITs don’t file public SEC reports, they still provide:
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Daily unit values
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Fact sheets
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Quarterly performance updates
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Morningstar or PlanView coverage (for many large CITs) cit in finance.
Some plans list performance in participant portals, including:
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YTD return
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Annualized 3/5/10-year returns
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Benchmark comparison
📌 Note: Unlike mutual funds, you may not find them on Google Finance or Yahoo Finance. cit in finance.
🛡️ 13. Fiduciary Considerations in Using CITs
For plan sponsors and advisors:
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CITs often satisfy ERISA Section 404(c) as long as:
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The selection process is documented
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Fees are disclosed in participant notices (e.g., 404a-5)
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Investments are diversified and monitored
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📌 Best practice: Benchmark the CIT’s net return, not just gross performance.
🔧 14. Customization Possibilities with CITs
One of the biggest advantages over mutual funds is customization:
| Feature | Mutual Fund | CIT |
|---|---|---|
| Custom glide path | ❌ No | ✅ Yes |
| Plan-level fee sharing | ❌ No | ✅ Yes |
| White-labeled branding | ❌ No | ✅ Yes |
| Multiple share classes | Limited | Flexible |
Examples of CIT customizations:
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Target Date CITs tailored to a company’s workforce demographics
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ESG-screened equity CITs for socially responsible plans
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Risk-adjusted CITs based on industry-specific retirement ages
🧩 15. How CITs Fit Into a Modern 401(k) Lineup
Modern retirement plan investment menus may look like this:
| Tier | Investment Type | Example |
|---|---|---|
| Tier 1 | QDIA (Default Fund) | Target Date CITs |
| Tier 2 | Core Menu | Index CITs, Stable Value CITs |
| Tier 3 | Specialty Options | Active CITs, ESG CITs |
| Tier 4 | Self-Directed Brokerage | Mutual funds/ETFs (outside CIT scope) |
CITs dominate Tier 1 and Tier 2 for cost efficiency and scale.
🚀 16. Trends & The Future of CITs
📈 Market Growth
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As of 2024, CIT assets surpassed $7 trillion
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Over 80% of large retirement plans use CITs
🔄 Conversion of Mutual Funds to CITs
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Some mutual fund firms now offer “clone” CIT versions of their retail funds. cit in finance
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Example: Vanguard Target Retirement Mutual Fund vs Vanguard Target Date CIT
🧠 Advisor Awareness
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More Registered Investment Advisors (RIAs) are being trained to evaluate CITs
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Platforms like Fiduciary Benchmarks, Morningstar Direct, and PlanTools offer CIT analytics
🧮 17. Sample CIT Return vs Mutual Fund Return (Hypothetical)
| Fund Type | 3-Year Annualized Return | Expense Ratio |
|---|---|---|
| Mutual Fund | 7.80% | 0.35% |
| CIT Equivalent | 7.95% | 0.10% |
On large asset balances, even a 0.25% fee savings can mean millions in cumulative growth over time.
👨💼 18. Use Cases: Who Should Use CITs?
| Persona | Why They Use CITs |
|---|---|
| Plan Sponsor (HR/Finance) | Lower fiduciary risk, cheaper plan |
| Financial Advisor | Stronger client retention with cost-efficient plans |
| Participant (Employee) | Lower fees, better retirement outcomes |
| Asset Manager | Simpler structure, avoids SEC marketing limits |
📘 19. CIT Resources & Where to Learn More
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Morningstar CIT Database (advisor only)
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National Association of Plan Advisors (NAPA)
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U.S. Department of Labor (DOL) for ERISA rules
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OCC.gov for trust regulation insights
✍️ 20. Bonus: Suggested Communications for Employees
📨 Sample email to plan participants:
“We’ve added Collective Investment Trusts (CITs) to your 401(k) lineup. These low-fee institutional investments are similar to mutual funds but tailored for retirement plans, helping reduce costs and improve long-term returns.”
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