More DC Plans Using CITs

Cerulli’s recent report “U.S. Defined Contribution Distribution 2017: Re-Evaluating the Use of CITs in DC Plans” suggests that even “perennial cynics” are beginning to see the distribution opportunity collective investment trusts (CITs) present in the U.S. defined contribution (DC) plan market.

According to Jessica Sclafani, associate director at Cerulli, asset managers that currently do not offer collective trusts or offer a limited number of investment strategies in a collective trust vehicle are “sharpening their pencils and evaluating where a collective trust vehicle may create an opportunity to offer more competitive pricing.”

As the CIT product set expands, it is important for retirement plan fiduciaries to follow the market developments to ensure their participants are presented with cost-efficient and competitive investments. In fact, says Sclafani, in today’s evolving marketplace, DC plan mandates “can be won or lost by the difference of a few basis points [bps].”

“Mutual funds consistently represent greater than half of total 401(k) plan assets,” she notes. “The next-largest investment vehicle by 401(k) plan assets is CITs, which hold almost one-fifth of total 401(k) plan assets at this point. Together, mutual funds and CITs hold close to three-quarters of 401(k) plan assets, making them the most widely used investment vehicles for 401(k) plans.”

Given the momentum that continues to build behind CIT investment vehicles, Cerulli believes there is room for the trusts to expand from their current share of the 401(k) plan market by taking a piece of it from mutual funds. In a survey of 401(k) plan sponsors cited by the reporting, nearly one in five indicate they anticipate switching the vehicle of at least one investment option from a mutual fund to a CIT in the near future.