This investment is cheaper and better than mutual funds
By Alicia Munnell
December 7, 2024
Anyone concerned about fees in retirement plans should be delighted that the use of collective investment trusts (CITs) that invest in the same assets as mutual funds has been increasing among 401(k) plans (see Figure 1) and that the Secure 2.0 legislation allows 403(b) plans to invest in CITs. (A 403(b) plan is a retirement-savings plan sponsored by a public educational institution, 501(c)(3) tax-exempt organization, or other non-profit.)
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CITs’ status under the securities laws does not mean that they are “unregistered financial products,” as claimed by opponents. CITs are maintained by banks and therefore are subject to banking regulations governing CIT trustees. They are also subject to common law principles of fiduciary duty.
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More interesting, if a retirement plan covered by ERISA invests in a CIT, the manager of the CIT is subject to ERISA fiduciary obligations. In other words, as long as one of the investors in the CIT is an ERISA plan, all the CIT assets will be managed in accordance with the ERISA fiduciary standard. That means that if a 403(b) plan not covered by ERISA (such as those for public school teachers) invested in a CIT, that portion of the plan’s assets would benefit from ERISA protections.
