Collective investment trusts (“CITs”) have become an increasingly popular choice for 401(k) plan investment menus over the past decade, with a large portion of target-date strategies being invested in CITs. CITs are pooled investment funds sponsored by a bank or trust company that are only available to qualified retirement plans, such as 401(k) plans. They are similar to mutual funds, but with lower costs and fewer regulatory requirements.
Target-date strategies had $153 billion of net inflows in 2022, of which $121 billion—or 79%—went into collective investment trusts (CITs), according to a report by Morningstar. This shift toward CITs can be attributed to their lower fees and flexibility, as well as the fiduciary protection they offer to plan sponsors.
A volatile market is worrisome for many Americans, including - and maybe especially - those saving for retirement. However, CITs have been touted for their ability to provide stability during market fluctuations. This is due to their investment strategy, which focuses on long-term, diversified investments rather than short-term gains.