Page 494 - DCAC Feb 2026 Files

A Fiduciary’s Guide to CITs:

Common Misconceptions

Sydney Aeschlimann, ASPPA QKS® Ian Gilbert Taylor Truitt
Associate Consultant Analyst Analyst Assistant

CITs are pooled investment vehicles, available exclusively to qualified outperform mutual funds, and their success depends on a multitude
retirement plans. They have become attractive alternatives to of factors. The differences in allowable investments, cash flows, and
mutual funds due to their cost-effective access to institutional-grade legal involvement from the plan sponsor between mutual funds and
investments. CITs make up 30% of defined contribution plan assets, CITs can lead to negative tracking error (performance differences
double from a decade ago. As their popularity continues to grow, between the CIT and the mutual fund). Depending on the specific
plan sponsors must understand the nuances that accompany these CIT’s trust structure, it can be restricted from investing in certain
vehicles. Plan fiduciaries should be aware of several misconceptions investments. Examples that could be restricted from investment
surrounding CITs to evaluate and monitor their inclusion in employer- include commodities, direct real estate, pre-IPO securities, and below-
sponsored retirement plans properly. investment-grade, non-agency residential mortgage-backed securities.
Misconception 1: All Mutual Funds and CITs are Created Equal Additionally, since CITs tend to have fewer investors given their

Just because a CIT and a mutual fund have the same name and institutional nature, when plans enter or exit the CIT, it can impact
employ the same strategy does not mean they are identical. Mutual the manager’s effectiveness in deploying and trading that cash. Given
funds and CITs have distinct legal and regulatory structures. The the recent increase in CIT adoption, managers must deploy many
Securities and Exchange Commission (SEC), under the Investment inflows appropriately, which can be tricky. It is also important to note
Company Act of 1940, regulates mutual funds, while banking that there are typically legal fees to review the additional contracts
authorities, such as Office of the Comptroller of the Currency and paperwork that come with CITs. Overall, CITs may have lower
(OCC) or a state banking authority, regulate CITs, as they are bank- fees, but the differences between the vehicles could lead to worse
maintained trusts. This means CITs do not have a public ticker symbol performance. Fiduciaries should evaluate CIT’s performance in a
or a standardized prospectus. variety of time periods against its mutual fund counterpart as well as
applicable peer groups and benchmarks. When negative deviations
Misconception 2: Lower Fees Always Lead to Better Net of Fee Returns
exist, it is important to understand why and whether they are short-term.
CITs are typically offered at a lower cost than their mutual fund Misconception 3: Information Available to Participants is Identical
counterpart. This is for a few reasons, including avoiding SEC Between CITs and Mutual Funds
registration, disclosure, and marketing costs. CITs can come with
tax advantages, especially in international investments, leading to It can become particularly tricky for plan participants to find
savings. Therefore, switching to an “identical” investment vehicle information on CITs in their investment menu, as they do not have
with lower fees than its mutual fund counterpart sounds like a a familiar ticker symbol or the same public disclosure requirements
no-brainer. One would expect that with lower fees, the CIT would as mutual funds. Under the Employee Retirement Income Security
have better net-of-fees performance. However, CITs do not always Act (ERISA), fiduciaries must provide participants with sufficient

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