Over the past decade, many retirement plans have quietly implemented a fundamental innovation that’s led to lower fees and higher returns for defined contribution plan participants.
It’s called a collective investment trust (CIT), which has been available for retirement plans since 1927.1 However, it has gained popularity over the last decade, challenging mutual funds as the primary investment in 401(k)s and other retirement plans.
CITs function like mutual funds but are only available in retirement plans, which can have multiple CITs, giving them negotiating leverage over pricing with the investment firms managing them.
Perhaps as important: CITs’ low fee structure may help plan sponsors avoid ERISA litigation on excessive fees.
The boom in collective investment trusts for plan sponsors
Quietly, CITs have become the vehicle of choice for target-date retirement investments, outpacing mutual funds. In 2015, CITs comprised less than 30% of target-date funds, but by June 2024, CITs accounted for $1.9 trillion, or 50.5%, of all target-date assets, with mutual funds accounting for the rest.2
CITs are unlike mutual funds in that the former is only available to retirement plan participants. Retirement plan assets tend to remain invested in a fund longer than other investors’ assets.
In addition, participant contributions make inflows steady and reliable. The impact? CITs need less administration, which helps make them less expensive than mutual funds. And directly related to those lower prices are higher net returns.
Banks run or act as trustees for CITs and have reduced public disclosure requirements. And while they operate similarly to mutual funds, CITs can offer greater flexibility, including the ability to customize portfolios. For example, a CIT can use multiple managers, blending diverse investment management styles for an additional layer of diversification.
What is the fiduciary advantage of CITs?
Because CITs are a product with relatively low costs and consequently higher returns, using them is a logical step for plan sponsors who seek to achieve the best outcomes for their plan participants and to follow best practices as a plan fiduciary. This is particularly important as plaintiffs file record numbers of class-action lawsuits for excessive fees.3
Although CITs have existed for nearly 100 years, many plan administrators and investment committees may be unaware of the CIT option. There are regulatory hurdles and paperwork involved for plan sponsors that mutual funds don’t have. Also, some mutual fund investment strategies may not be available in a CIT.
Those factors make it important for any plan sponsor considering CITs to consult with a trusted advisor to develop the right strategy for their retirement plan options.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
HUB Retirement and Private Wealth offers institutional and retirement services to for-profit and not-for-profit organizations and customized private wealth management services to individuals and families. Employees of HUB International offer securities through partner Broker Dealers not affiliated with HUB. Employees of HUB provide advisory services through both affiliated and unaffiliated Registered Investment Advisors (RIA). Global Retirement Partners, LLC, HUB Investment Advisors, TCG Advisors, Millennium Advisory Services, and Taylor Advisors are SEC registered investment advisors and wholly owned subsidiaries of HUB International.
1Investopedia, “Collective Investment Fund (CIF): History, Pros and Cons, Example,” February 7, 2025.
2Morningstar, “CITs Dethrone Mutual Funds as the Most Popular Target-Date Vehicle,” August 8, 2024.
3Planadvisor, “401(k) Excessive Fee Litigation Spiked to ‘Near Record Pace’ in ’24,” January 13, 2024.