From a 401(k) participant’s point of view, CITs work like mutual funds. They are:
- Pooled—they may contain the money of many qualified plan investors
- Liquid daily—participants can add or remove funds daily
- Transparent—fact sheets are typically available
- Eligible for use as qualified default investment alternatives (QDIAs), as long as they meet common QDIA requirements, such as target-date CIT funds
Under the hood, however, CITs are different. Unlike mutual funds, CITs are:
- Maintained by a bank or trust company manager
- Exclusive to certain qualified retirement plans
- Invested in through a contract (participation agreement) between the plan fiduciary and the trust or bank, which determines plan eligibility
- Exempt from many of the registration, administrative, and marketing regulations that drive costs incurred by mutual funds
This last point gives CITs a structural cost advantage over mutual funds: All else being equal, they tend to be cheaper. This is where their real benefit lies, not to mention their appeal for a plan sponsor fiduciary obligated to ensure investment costs are reasonable.
CITs have other unique features
CIT fees can differ from client to client, with larger mandates often qualifying for lower fees. Mutual funds, on the other hand, don’t have fee flexibility. Also, CIT managers—unlike mutual fund managers—are ERISA fiduciaries.
CITs are transparent
CIT managers typically produce fact sheets, provide standardized performance information and expense disclosures, and distribute investment commentary in the same format as mutual funds. Participants, therefore, get the same information about CIT investments as they would a mutual fund.
Although CITs aren’t publicly traded, they can be publicly tracked by investors if the CIT trustee chooses to offer a ticker symbol. CIT ticker symbols work just like mutual fund tickers, enabling investors to check prices daily. Not all CITs have a ticker symbol, however, so be sure to check before investing.
Requirements for CIT investing
CITs are trusts, and a plan fiduciary to a CIT typically has to complete a participation agreement and a know-your-customer and anti-money-laundering review to ensure they're qualified to invest in the CIT. While generally straightforward, the agreement is a legal document. For this reason, you’ll want to have a lawyer or financial professional review it before you invest.
Additionally, CITs have unique reporting and administrative requirements. You should consult with both your recordkeeper and auditor (because CITs aren't level 1 assets for IRS Form 5500 reporting purposes) before investing in a CIT vehicle to make sure that you can comply.
Consider CITs for your 401(k) plan
CITs have structural cost advantages over mutual funds, but—at times—may lack a track record. But there are other factors that you need to consider as well, such as contract terms and ongoing administrative requirements. Usually, financial professionals and 401(k) recordkeepers can help manage these details. This could make CITs an attractive alternative to mutual funds for 401(k) ERISA fiduciaries to make available to their participants.
For complete information about a particular investment option, please read the fund prospectus or offering memorandum/trust document. You should carefully consider the objectives, risks, charges and expenses before investing. The prospectus or offering memorandum/trust document contains this and other important information about the investment option and investment company. Please read the prospectus or offering memorandum/trust document carefully before you invest or send money. Prospectus or offering memorandum/trust document may only be available in English.
This is not an offer to sell units of the trust and the trust is not soliciting offers to buy units of the trust at any time in any jurisdiction where the offer or sale is not permitted. Units of the trust are only offered to eligible qualified employee benefit plans in the sole discretion of the trustee. Descriptions of the trust should be read together with the declaration of trust, the participation agreement and the fund declarations, copies of which are available to qualified investors upon request from John Hancock Trust Company,( John Hancock Lifetime Blend Trust), or Global Trust Company, (John Hancock Stable Value Fund).
Collective investment trusts: The fund is a collective investment trust and is privately offered. Information on this investment is not available in local publications.
All mutual funds are subject to market risk and will fluctuate in value.
There is no guarantee that any investment strategy will achieve its objectives.
The content of this document is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made herein.
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