Time to Consider a Collective Trust?
A recent article in PLANADVISER highlights some of the benefits of Collective Trusts. The article, “Time to Consider a Collective Trust?”, John Manganaro provides an overview of Collective Trusts, how they are used, and why they are appealing alternatives to target date or balanced funds. Interest in Collective Investment Trusts (CITs), which are also known as Collective Investment Funds (CIFs) by plan sponsors is growing, due to a number of factors, some of which are covered in the article.
A few excerpts:
- “CITs are investment vehicles in which assets from multiple plans can be commingled into one trust.Each CIT is managed professionally on behalf of those plans and not open to the public. For that reason, they’re only available as an investment option within employer-sponsored plans that have negotiated an agreement with the CIT provider.
- (CITs) are regulated more as a banking product than an investment fund. Therefore the products fall under the oversight of state banking regulators and the federal Office of the Comptroller of the Currency (OCC), rather than the Securities and Exchange Commission (SEC). The OCC regulators are rigorous in their examinations of trust companies and CITs, he says, but providers in the space are advantaged in that the OCC requires less documentation and pre-approval compared with the SEC.
- Appeal of CITs for Plan Sponsors and fiduciaries is generally a lower expense profile and an improved ability to create unique investment funds that address the needs of real plan participants in a more refined way than retail target-date funds
- A few other benefits of CITs:
o CITs trade on the same platform as mutual funds and allows for plan participants to track performance on a daily basis
o Because the plans are co-mingled, you don’t have the minimum asset requirements that are typical in institutional-class mutual funds.
o Trust providers of Collective Funds are plan fiduciaries.”
The entire article can be accessed at the following link at: PLANADVISER.com.
