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Benefits August 27, 2025
CITs Expand, Go Smaller
Increasingly, smaller retirement plans are adding collective investment trusts to their investment menus.
Reported by Emily Boyle
Art by Greg Clarke
The retirement security of millions of working Americans is becoming increasingly reliant upon an asset structure that is likely less familiar than its ubiquitous counterpart, but powerful to many.
Enter the collective investment trust, an investment vehicle solidifying its place in large, midsize and small plans across the defined contribution retirement plan market. Often defined only in comparison with their functionally similar alternative—the mutual fund—CITs pose one of the greatest challenges to mutual funds in the defined contribution market, despite risks of their own, explained Natalya Shnitser, professor and David and Pamela Donohue Faculty Fellow at Boston College Law School, in her essay, “Overtaking Mutual Funds: The Hidden Rise and Risk of Collective Investment Trusts.”
CITs held nearly 30% of assets in DC plans in 2021, the last year for which data is available, up from 13% a decade ago, according to a Morningstar report published in April 2023. With more than $5 trillion in assets at the end of the first quarter of 2025, the CIT marketplace shows no signs of slowing down. In fact, the use of the investment structures is expanding—by going smaller.
What’s Driving Adoption?
“There are [several] macro factors driving [CIT] adoption,” says Bill Ryan, a partner and defined contribution team leader at NEPC. “No. 1 is lower fees for CITs relative to [fees for] mutual funds.”
For plans administered by The Vanguard Group, the average mutual fund fees are twice as high as the average CIT fees—0.16% vs. 0.07%—a cost gap of 0.09 percentage points, according to a study the asset manager published in June. For larger plans, those with more than $4 billion in assets, the gap widens to 0.11 percentage points.
“Even seemingly small savings, when compounded over the course of a career, can result in hundreds of thousands of dollars of additional retirement income,” says Jason Levy, senior counsel at Great Gray Trust Co. “[Savings are] not coming at the expense of stripping regulations or investor protections.”
While CITs, which are tax-exempt, pooled investment vehicles, are not, like mutual funds, regulated by the Securities and Exchange Commission. They are regulated by the Office of the Comptroller of the Currency when sold by federally chartered banks, and by state bank regulators when sold by state-chartered banks. When a retirement plan that includes CITs within its investment lineup is subject to the Employee Retirement Income Security Act, the Department of Labor also has authority over the CITs, through its oversight of the plan.
Like Levy, Sean Bjork, president of Bjork Asset Management, names CITs’ cost advantages as the chief factor driving adoption. He says on the plan sponsor side, decisionmakers are understanding that CITs may bring them “different cash flows”—i.e., money being sent into the funds to invest—than do mutual funds, which in turn affects funds’ performance and results. But they also recognize that they are doing this for a lower cost—and potentially under the same investment management team of their choosing.
Levy and Bjork highlight the widening availability of CITs as a factor contributing to their uptake, as well. As investment minimums for CITs have come down, more recordkeepers and trust companies have been making these vehicles easier to access, they say.
“There has been a rapid increase in the accessibility [of CITs] over the past five years,” says Levy. “Investing minimums of $100 million or up have been dramatically reduced or totally eliminated, … and a large number of [smaller] plans are now offering CITs.”
Small Plan Adoption
“Sometimes the bigger plans are early adopters, and the smaller plans follow suit,” says Dan Pawlisch, 403(b) client practice leader at Aon. “Smaller DC plans have seen that big plans are taking the lead … [in] adopting CITs.”
According to UMB Fund Services’ July “CITs in Focus: Market Developments and Trends” report, the bulk of the original growth in CIT assets was in large DC plans, where CITs quickly captured a “significant market share.” Systematic barriers, including high investment minimums, a limited array of investment choices and a general lack of familiarity or understanding among plan sponsors and their participants put small plans at a disadvantage for adopting the solution. But now, small plans are embracing the broader advantages of CITs.
“For a while, mutual fund companies either didn’t have a CIT to provide to small plans, or priced it in a way that you had to have over a certain asset level to access CITs—so that CITs didn’t cannibalize their mutual fund business,” Ryan explains.
He adds that asset managers now prefer CITs because there are fewer cost burdens and less friction associated with the structure. That’s why small plans are catching on, he says.
Investment Categories
When asked which CIT investment categories participants are investing in, Levy says he has seen a change over time.
“Historically, target-date funds were an early driver for CITs,” he says. “But, increasingly, all types of investments are now using the CIT wrapper.”
Bjork says that investment strategies used in the funds regulated under the Investment Company Act of 1940—including mutual funds and exchange traded funds—have become available within CIT structures. Now, participants are investing in CITs in categories across the board.
Pawlisch says index funds and target-date funds are the categories he sees clients invest in, via CITs, the most. Bjork adds that he sees investors choosing across the board, but that they tend to choose CITs of the “more popular vanilla strategies” because they want an established strategy, from both the standpoint of the trust company and the asset manager involved.
According to UMB’s report, in Q1, passive CIT strategies outpaced active strategies with a five-year compound annual growth rate of 26%, compared with 14% for assets invested via active CITs. At the end of the quarter, passive CITs represented $3.2 trillion compared with $1.8 trillion for active strategies.
Also in the first quarter of this year, investors gravitated toward U.S. equities; allocation, a category of investments that is prominent in target date series; international equity; and taxable bonds, as ranked by assets under management. CITs in smaller asset categories, such as money market funds, commodities and sector equity have, in contrast, have shrunk in assets over the last three years, according to UMB.
Challenges to Adoption
“The challenges are minor,” NEPC’s Ryan says. “It’s a lowercase ‘c’ in ‘challenges.’”
At the same time, CIT adoption has not been a “slam dunk” for small plans, Aon’s Pawlisch says.
He points first to paperwork issues, related to participation agreements and other legal documents that plan sponsors and fiduciaries need to sign to incorporate CITs into their investment lineups. Smaller DC plans might not have expertise in-house and would need to go to an outside legal counsel in order to adopt CITs, he suggests. When transferring between mutual funds, there is no paperwork required beyond that which is already on the recordkeeper’s platform, he says.
Usually, however, problems such as a recordkeeper lacking the right subscription documents for a new CIT or share class can slow down the transition process by “weeks, not months or years,” Ryan says.
“If there was a wrinkle, … it’s akin to what mega plans had 15 or 20 years ago,” he says. “It’s new, it’s different, so you just need to explain that you’re getting the same stocks in both portfolios … you’re just getting different wrapping paper.”
The challenges related to CITs are across the board for all plans, not specific to small plans, Bjork points out.
“One is just understanding what you’re buying,” he says.
It’s the responsibility of the adviser or provider to explain the differences between a CIT and a mutual fund, he says. Participants need to understand that data they can access about CITs may not be as readily available as what they can find about mutual funds.
“Most CITs do not have ticker symbols, as they are not traded on public exchanges,” Pawlisch says. “Instead of ticker symbols, CITs are usually identified by CUSIP numbers—unique codes assigned to financial instruments.”
“The average plan participant is probably a little more comfortable just being able to plug in a ticker instead of having to chase down a CUSIP,” Bjork adds. As a result,’40 Act funds aren’t going anywhere anytime soon.”
Pawlisch notes an additional challenge: A CIT might have been started later than a mutual fund, so there is less historical performance data for plan sponsors or participants to review when making an investment selection.
“Maybe I have only three years [to look at] instead of 10 years,” Pawlisch says. “And sometimes it’s just some of the education and communication that has to occur to help participants better understand that [reality].”
Levy says the greatest challenge remaining is to educate advisers unversed in the investments.
“CITs have become very prevalent in plans, but there is still a good amount of unfamiliarity about them.”
Potential Risks
Besides there being some challenges to adoption, lighter regulatory scrutiny of CITs continues to attract questions about the use of the structure.
“Although lower fees in retirement plans are an important and attractive feature, the lower fees currently come at the expense of transparency and disclosure,” wrote Boston College’s Shnister in her essay on CITs. “Industry participants have identified regulatory risk—that is, ‘unforeseen regulatory challenges and documentation requirements at the hands of regulators’ as the ‘biggest risk’ to the market opportunity for CITs.”
Shnitser calls the regulatory framework for the vehicles “fragmented” because of the variation in oversight based on what type of institution establishes them
And CITs avoid substantive regulation under the ’40 Act, including regulation concerning fund advisers, fund governance and permissible investments, she adds.
Shnitser says that the SEC has begun raising concerns, including before the Financial Stability Oversight Council, about the risks “stemming from such regulatory gaps” and the “financial fires” that could spread in the absence of consistent regulation. The FSOC, likewise, has encouraged state and federal regulators to consider reforms to promote transparency and mitigate risks posed in CIT marketplaces.
“Reform would require serious agency coordination as well as agreement on the desired policy goals,” Shnitser wrote.
Continued Momentum
Despite the potential need for regulatory changes in the CIT arena, proposed legislation indicates there is a call to maintain the momentum of the investment structure’s increasing popularity.
Levy and Pawlisch both say they hope the pending bipartisan Retirement Fairness for Charities and Educational Institutions Act passes, to that end—and to help continue the momentum of CITs and to level the playing field to include CIT use in 403(b) plans.
The proposed law would expand CIT access to the 501(c)(3) organizations, colleges, universities and other entities that offer 403(b) plans. Without a change in the law, this segment of retirement plan participants may not invest in the instrument.
The bill would allow them access to “the same type of [vehicle] that has been afforded to private sector retirement plan for decades,” Levy says.
“If we were to get those security-law changes that would allow CITs into 403(b) plans, it would really help accelerate the adoption of CITs, particularly in the small segment of the market … because a lot of 403(b) plans are on the small side,” Pawlisch says. “That would go a long way to getting a wider adoption of CITs in [general].”
“Regardless of what savings plan [employees] use, they should have the opportunity to invest in CITs,” Levy says. “The bipartisan bill is a long overdue fix.”
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