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CITs Mainstream in DC Plans

Collective investment trusts, or CITs, are making a strong push into DC plans — and not just larger ones.

Research shows that CITs have increased 68% in DC plans since 2008, topping $1.5 trillion.

What’s driving their popularity? According to a Pensions & Investments report, it’s not just lower costs — it also provides greater flexibility for plan sponsors, as CIT providers are making them easier to use and providing more education to participants.

Vanguard reported that in 2015, 20% of assets in plans they manage were in CITs, up from 6.7% in 2010. Callan reported that 71% of plans offered CITs in 2015, up from 44% in 2011. And it’s not just larger plans, as had been the case previously. Hewitt indicates that 51% of assets in plans with less than $1 billion are in CITs, compared with 35% among plans with more than $5 billion, where 53% of assets are in separately managed accounts (SMAs). Mutual fund market shares are 31% and 11% respectively.

CITs have not been as popular for plans with under $100 million, as the cost benefits are muted, but the market is changing. Not only are providers more comfortable offering CITs, larger advisory practices are also making them available as a way to distinguish themselves from smaller firms, leveraging their greater buying power. Two recent lawsuits by the Schlichter law firm against multi-billion dollar 401(k) plans offered by Chevron and Anthem claimed that the plan should have considered CITs and SMAs as a lower cost alternative to mutual funds. With the use of revenue sharing increasingly becoming an issue and a focus of litigation, CITs may offer smaller plans and their advisors attractive options.

Opinions expressed are those of the author, and do not necessarily reflect the views of NAPA or its members.