What is a CIT?
Collective investment trusts (CITs) are tax-exempt, pooled investment vehicles maintained by a bank or trust company, and they’re available only to retirement accounts that qualify under the Employee Retirement Income Security Act of 1974 (ERISA). They're exempt from many of the regulatory requirements that drive mutual fund expenses, generally giving them a fee advantage over mutual funds. Because costs are an important consideration for you as an ERISA fiduciary, you may want to think about offering CITs in your 401(k) plans.
CIT basics
From a 401(k) participant’s point of view, CITs work like mutual funds. They're:
- Pooled—They may contain the money of many qualified plan investors
- Liquid daily—Participants can add or remove funds daily
- Transparent—Fact sheets are typically available
- Eligible for use as QDIAs—As long as they meet common qualified default investment alternative (QDIA) requirements, such as target-date CIT funds
Under the hood, however, CITs are different. Unlike mutual funds, CITs are:
- Maintained by a bank or trust company manager
- Exclusive to certain qualified retirement plans
- Invested in through a contract (participation agreement) between the plan fiduciary and the trust (e.g., CIT fund), which determines plan eligibility
- Exempt from some of the registration, administrative, and marketing regulations that drive costs incurred by mutual funds
This last point gives CITs a potential structural cost advantage over mutual funds: All else being equal, they tend to be a lower-cost vehicle. This is where their real benefit lies, not to mention their appeal for a plan fiduciary who has a responsibility to ensure that investment costs are reasonable.
Source: “U.S. Defined Contribution Distribution 2023,” The Cerulli Report, Cerulli Associates, 2023.
CITs have other unique features
CIT fees can differ from client to client, with larger investments often qualifying for lower fee share classes. Mutual funds, on the other hand, don’t have fee flexibility. Also, CIT managers—unlike mutual fund managers—are ERISA fiduciaries.
CITs are transparent
CIT managers typically produce fact sheets, provide standardized performance information and expense disclosures, and distribute investment commentary in the same format as mutual funds. CITs are priced daily and have annual audited financial statements; participants, therefore, get the same information about CIT investments as they would a mutual fund.
Although CITs aren’t publicly traded, they can be publicly tracked by investors if the CIT manager chooses to offer a ticker symbol. CIT ticker symbols work just like mutual fund tickers, enabling investors to check prices daily.
Requirements for CIT investing
Plan fiduciaries interested in investing in a CIT must complete a participation agreement in which they provide representations confirming that the plan is qualified to invest in a CIT. While generally straightforward, a participation agreement is a legal document. For this reason, we recommend that a lawyer or financial professional reviews it prior to investing.
Consider CITs for your 401(k) plan
CITs may help plan fiduciaries meet their duties to participants by providing a compelling lower-cost diversified investment vehicle. This could make CITs an attractive alternative to mutual funds for 401(k) ERISA fiduciaries who are considering the optimal investment lineup for a plan's participants.
For complete information about a particular investment option, please refer to the fund offering document/trust document. You should carefully consider the objectives, risks, charges, and expenses before investing. The fund offering document/trust document contain this and other important information about the investment option. Please read the fund offering document/trust document carefully before you invest or send money. The fund offering document/trust document may only be available in English.
Important disclosures
Collective investment trusts: The fund is a collective investment trust and is privately offered. Information on this investment is not available in local publications.
All investment funds are subject to market risk and will fluctuate in value.
There is no guarantee that any investment strategy will achieve its objectives.
Collective investment trusts are offered through banks or trusts overseen by state or federal bank regulators and subject to the federal laws governing retirement plan fiduciaries. Mutual funds are offered through registered investment companies overseen by the U.S. Securities and Exchange Commission.
A Collective Investment Trust (CIT) is a pooled investment vehicle that is maintained by a bank or trust company for the collective investment of certain qualified retirement plans. CITs are exempt from registration under the federal securities laws and exempt from the regulatory requirements on mutual funds under the Investment Company Act of 1940; however, they are subject to federal and state regulation under the banking laws, the Employee Retirement Income Security Act of 1974, the Internal Revenue Code, and certain securities laws. A mutual fund is a publicly traded pooled investment fund registered with the U.S. Securities and Exchange Commission.
CITs maintained and distributed by John Hancock Trust Company, LLC, 197 Clarendon Street, Boston, MA 02116 or jhinvestments.com
The content of this document is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made.
John Hancock Retirement Plan Services LLC offers administrative and/or recordkeeping services to sponsors and administrators of retirement plans. John Hancock Trust Company LLC, a New Hampshire non-depository trust company, provides trust and custodial services to such plans, offers an Individual Retirement Accounts product, and maintains specific Collective Investment Trusts. Group annuity contracts and recordkeeping agreements are issued by John Hancock Life Insurance Company (U.S.A.), Boston, MA (not licensed in NY), and John Hancock Life Insurance Company of New York, Valhalla, NY. Product features and availability may differ by state. Securities are offered through John Hancock Distributors LLC, member FINRA, SIPC.
John Hancock Investment Management Distributors LLC is the principal underwriter and wholesale distribution broker-dealer for the John Hancock mutual funds.
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