Understanding Collective Investment Trusts (CITs): Benefits for 401(k)s and Potential for 403(b)s

Small business owners and retirement plan sponsors continually seek ways to maximize value for their employees while managing costs and fiduciary responsibilities effectively. Understanding investment solution options such as Collective Investment Trusts (CITs) can significantly enhance your plan's expenses. Here's why CITs should be on your radar:

Collective Investment Trusts (CITs) are investment options that have steadily gained popularity among 401(k) retirement plan sponsors. But what exactly are CITs, and why are they considered valuable to retirement plans?

What are CITs?

CITs look and feel like their mutual-fund counter-parts as an investment option. However, they are pooled investment funds available exclusively to qualified retirement plans. Unlike mutual funds, CITs are not publicly available to individual investors. The restriction to institutional retirement plans often allows them to operate with lower expenses and increased flexibility than their mutual fund counterparts. Because CITs are regulated by banking regulators and federal securities laws rather than the SEC, they generally experience fewer initial start-up and ongoing costs and can pass those savings onto participants

Why CITs Add Value to 401(k) Plans

1. Lower Costs: CITs often carry lower fees compared to retail mutual funds due to fewer regulatory and marketing expenses. Lower costs can significantly enhance participant returns over time.

2.  Flexible Investment Options: CITs offer plan sponsors greater flexibility in designing custom investment strategies aligned with the specific needs of their workforce

3. Fiduciary Alignment: CITs align well with fiduciary responsibilities by often providing greater transparency on costs and investment processes, helping sponsors meet their fiduciary duties more effectively.

Some considerations

1. CITs do not have a ticker, though they will have a CUSIP identifier. Some plan participants may be confused how to research investment options absent a ticker available.

2. Transparency and Reporting: CITs may offer less frequent or less detailed public reporting compared to mutual funds, which could create additional effort for sponsors when evaluating and explaining investment performance to participants.

3. Eligibility and Access Limitations: Because CITs are limited exclusively to qualified retirement plans, transferring funds or rolling assets out of the plan might involve additional considerations or restrictions compared to mutual funds.

CITs and 403(b) Plans: The Ongoing Political Landscape & What's Next

Historically, CITs have been available to 401(k) and other qualified retirement plans but not to 403(b) plans, primarily due to regulatory differences in the Internal Revenue Code. 403(b) plans, often utilized by educational and non-profit organizations, have been limited to mutual funds and annuity contracts. However, recent legislative efforts have aimed at changing this. A proposal initially included and ultimately left out of the SECURE 2.0 (2022) bill, CITs in 403(b) plan shave been re-introduced and recently passed the U.S. House Committee on Financial Services in late May 2025 as part of the Retirement Fairness for Charities and Education Institutions Act of 2025 that Rep. Frank Lucas (R-OK).  The legislation highlights the political momentum to bring CITs’ cost-efficiency and flexibility benefits to educators and non-profit employees, leveling the retirement savings playing field.

What Plan Sponsors Can Do

For 401(k) sponsors, reviewing your current investment lineup, with your retirement plan adviser, to assess if CITs could provide additional value or cost savings is advisable. There may be fund minimums, so your advisory relationship will help to understand what is available on the platform or appropriate for plans like yours.

For 403(b) plan sponsors, stay informed about ongoing legislative developments and consider speaking with your retirement plan advisor to prepare for potential changes.

If you’d like guidance evaluating CITs for your retirement plan or staying updated on legislative progress, let’s connect. Together, we can ensure your plan remains both competitive and beneficial for your participants. I'm here to help, you can reach out at Christina.Tunison@lpl.com to learn how we can support your plan.

This information is not intended as authoritative guidance or tax or legal advice. You should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

 #752648 June2025