Collective Trust Funds Used Most by Large DC Plans

A recent Cerulli report conducted among defined contribution investment-only (DCIO) asset managers indicates larger plans are leading the way on the introduction and ongoing use of CITs. Nearly half of asset managers polled for the research said plan sponsors with more than $250 million are amenable to collective trust arrangements, explains Cindy Zarker, a director at Cerulli.

“Clearly, larger plans have higher comfort levels with collective funds,” she adds, but sponsors of all sizes are showing greater interest in the products. In basic terms, CITs are investment vehicles in which assets from multiple plans can be commingled into one trust and managed according to the specific risk profile and demographics of the trust. Each collective trust is managed professionally on behalf of the commingled plans and is not open to the public. For that reason, they’re generally only available as an investment option within employer-sponsored plans that have reached an agreement with a CIT provider.

The Cerulli research, “Institutional Markets 2013: Gaining Marketshare as Shifting Portfolio Construction Presents New Opportunities and Challenges,” suggests a combination of pricing flexibility, lower structural costs, and increasing availability on recordkeeping platforms is broadening appeal for CITs, also known as collective trust funds (CTFs), in defined contribution plans (see “Time to Consider a Collective Trust?”). “CTFs tend to be cheaper than mutual funds, with lower costs in compliance, administration, marketing, and distribution,” Zarker says.

Cerulli asserts that collective trusts can help asset managers win mandates from retirement plan sponsors, as CITs/CTFs usually offer institutional pricing at lower minimums than either mutual funds or separate accounts. Collective trusts are increasingly part of the ongoing discussion between providers and sponsors, Cerulli says, as recordkeeping platforms that were once dominated by mutual funds are increasing the number of collective trust products available to retirement plans.

Information about how to obtain a full copy of the report is available here.