Are collective investment trusts the right choice for your DC plan?

Are collective investment trusts the right choice for your DC plan?

Time to read: Minutes

Collective investment trusts (CITs) offer many benefits to defined contribution plan sponsors — and, ultimately, to plan participants — but misconceptions about them persist.

These days, CITs are the cool kids on the defined contribution investment block. According to Callan’s 2022 DC Trends Survey, 78% of plan sponsors included CITs in their investment menu in 2021, up from 44% a decade ago. Meanwhile, mutual funds — though still widely used — are declining in popularity.

Below, we clarify some common myths about CITs.

Myth #1: CITs are subject to less regulatory oversight than mutual funds.

Fact: Although CITs don’t have to register with the Securities and Exchange Commission, they are subject to numerous laws and regulations, imposed by state and federal bank regulators, the Department of Labor, the IRS and, in some cases, FINRA. The CIT trustee serves as an ERISA fiduciary to plan assets invested in the CIT and must act solely in the best interests of participants and their beneficiaries. CITs are audited annually by an independent auditor.

Myth #2: Fee transparency is a challenge for CITs.

Fact: CIT providers prepare 408(b)(2) disclosures, which outline the services performed and compensation paid (both indirect and direct). Most CIT providers also furnish recordkeepers with 404(a)(5) disclosures to distribute to participants.

Myth #3: CITs don’t offer the same level of plan reporting as mutual funds.

Fact: Most CIT providers supply reporting similar to that of mutual funds, including a daily net asset value (NAV) file, monthly net/ gross performance, monthly or quarterly holdings, and CIT fact sheets

Myth #4: Third-party data providers can’t monitor or evaluate CITs.

Fact: Many providers, including Morningstar and NASDAQ, offer CIT databases by subscription. Plan consultants also create and maintain extensive databases to help fiduciaries monitor and assess CITs.

Myth #5: Many DC plans need fee flexibility (such as revenue sharing), which is only available in mutual funds.

Fact: Many CIT providers now offer a variety of fee structures included in the NAV of each share. Arrangements can vary from zero revenue sharing to a set amount of revenue sharing to custom revenue sharing. This allows plan sponsors to customize the payment of fees based on their plans’ specific needs. And certain share classes may have negotiable management fees.

Myth #6: CITs don’t offer marketing or educational materials to help participants make informed investment decisions.

Fact: CITs have a Declaration of Trust, the governing document that establishes the CIT’s terms and conditions such as investor eligibility, valuation method, and how to invest in and redeem from it. Most CITs also publish a disclosure that contains detailed information about the investment objective and strategy, policies, fees or expenses, and risk characteristics. This document is similar to a mutual fund prospectus.

Why are so many plan sponsors adding CITs to their plans?

Cost consciousness: Most plan sponsors are searching for ways to offer cost savings in their retirement plans, often conducting fee reviews and studies. CIT fees are, on average, lower than mutual fund fees due to the trust structure’s lower overhead. These savings can then be passed along to plan participants.

Flexibility: DC plans can offer multiple CITs in their investment menus, and many CITs are available in a variety of share classes. CITs also offer access to asset classes that are typically off limits within a mutual fund (such as commodities, hedge funds and private equity). In some cases, plan sponsors can even collaborate with investment managers to offer participants customized CIT products.

Easy implementation: The process of setting up a CIT is comparable to that of a mutual fund. Most CITs can be traded via the National Securities Clearing Corporation (NSCC), which gives them the same operational efficiency as mutual funds.

Misconceptions about CITs linger. However, we think these investment vehicles will grow even more popular as plan sponsors better understand them and the numerous benefits they offer.


Past performance does not guarantee future results. This commentary has been prepared by Voya Investment Management for informational purposes. Nothing contained herein should be construed as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Any opinions expressed herein reflect our judgment and are subject to change. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of financial markets, (3) interest rate levels, (4) increasing levels of loan defaults, (5) changes in laws and regulations, and (6) changes in the policies of governments and/or regulatory authorities.

A collective fund is not a mutual fund; the collective investment trust fund is managed by Voya Investment Trust Co. As with any portfolio, you could lose money on an investment in a collective investment trust. There is no guarantee that any investment option will achieve its stated objective. Principal value fluctuates and there is no guarantee of value at any time. Refer to the Declaration of Trust for more information about the specific risks of investing in the particular asset classes included in the Voya collective investment trusts.

Participation in a Collective Trust Fund is limited to eligible trusts that are accepted by the Trustee as Participating Trusts. Eligible trusts generally include (i) certain employee benefit trusts exempt from federal income taxation under Code Section 501(a); (ii) certain governmental plans or units described in Code Section 414(d), Code Section 457(b), and Code Section 818(a) (6); (iii) certain commingled trust funds exempt from federal income taxation under Code Section 501(a); and (iv) certain insurance company separate accounts as defined in the Investment Company Act section 2(a) (17). Neither the fund nor units of beneficial interest in the Fund are registered under the Investment Company Act of 1940 nor the Securities Act of 1933, in reliance upon an exemption under these acts applicable to collective trust funds maintained by a bank for certain types of employee benefit trusts.

This information is provided by Voya for your education only. Neither Voya nor its representatives offer tax or legal advice. Please consult your tax or legal advisor before making a tax-related investment/ insurance decision. Products and services offered through the Voya® family of companies.