Collective investment trust (CIT)

A collective investment trust (CIT) is a pooled investment vehicle that combines money from multiple investors into a single portfolio with a specific investment strategy. Unlike mutual funds, which are generally available to the public, CITs are typically sponsored and maintained by a bank or trust company and are available only to certain qualified retirement plans, such as 401(k)s, defined benefit plans, and other institutional clients. They are not publicly traded on exchanges, and may not have public ticker symbols like mutual funds.

Potential regulatory and cost advantages

CITs are regulated by banking authorities, unlike mutual funds, which are regulated by the Securities and Exchange Commission (SEC), and often require extensive public disclosures (like prospectuses) and large marketing budgets. This distinction allows the CIT to operate with lower overhead and administrative complexity. 

Because they are often able to operate without the high marketing and compliance costs associated with retail funds, CITs can often pass those savings directly to the retirement plan and its participants in the form of lower expense ratios.

While CITs have been around for decades, they've become popular recently as a potentially more cost-effective way to invest in a company's retirement plan.

Potential benefits and risks for employers and employees

For employers, the benefit of offering CITs is the ability to provide institutional-class investments—often replicating the strategy of a famous mutual fund—at a potentially more cost-efficient price. For employees, this can translate into more of their money staying invested and compounding over time. While CITs are not publicly traded and don't have ticker symbols, plan trustees are held to a fiduciary standard to manage the trust in the best interest of the participants, providing a strong layer of oversight and protection.

Potential risks of CITs are related to limited transparency and liquidity challenges due to their regulation by bank authorities rather than the SEC, making it difficult for investors and plan fiduciaries to compare and track performance publicly. Additionally, CITs carry the standard investment risks of their underlying assets (stocks, bonds, etc.), and the lack of stringent external disclosure requirements places a higher burden on the plan sponsor to prevent conflicts of interest and ensure prudent management.

Click to learn more about how CITs differ from mutual funds.

*Investing is subject to risk, including risk of loss.