#4: Large Plan Shift from Mutual Funds to CITs

The largest plans in the U.S. started to abandon mutual funds 10 years ago and today hold nearly 45% of their assets in collective investment trusts—pooled vehicles that often offer similar strategies but are less regulated and can be much less expensive for participants. Morningstar also found that plans of other sizes have not increased their use of collective investment trusts at all.

Since 2011, CITs have grown from 19% of assets in DC plans, up to 33% of assets in 2020. Over that time, DC plan CIT assets more than quadrupled from $370 billion to $1.76 trillion in 2020, while DC plan mutual fund assets merely doubled from $1.32 trillion to $2.92 trillion in 2020.

CITs can offer a significant benefit to workers saving for retirement through reduced expenses, as they typically charge participants less than mutual funds. This difference in costs is mostly because CITs are not marketed nor regulated in the way that mutual funds are. When comparing the net expense ratio of CIT tiers and mutual fund share classes of the same strategy, CITs are cheaper 91% of the time, and even considering only the least-expensive CIT tier and mutual fund share class, CITs are cheaper 82% of the time.

Plans of all sizes continue to invest the majority of their assets in actively managed funds, with more assets in active strategies among smaller plans. “In terms of sustainability, we see evidence that retirement plan participants are exposed to higher-than-normal environmental, social, and governance risks, although some plans have investment options that account for these risks,” the report states. “In sum, most plan sponsors invest in similar strategies, but only the largest plan sponsors have adopted the vehicle that typically lets them offer the lowest cost, collective investment trusts.”

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