Name: The Forces Reshaping Retirement: Why CITs Are at the Center of It All
Uploaded: 2026-10-08T19:44:01.664Z
Duration: 34 min 50 s
Description: The Forces Reshaping Retirement: Why CITs Are at the Center of It All

Transcript for "The Forces Reshaping Retirement: Why CITs Are at the Center of It All": Hello. My name is Jason Levy, and I am thrilled to have the opportunity to speak with you all about the forces shaping... Reshaping retiring, why CITs are at the center of it all. CITs are now the most prevalent investment vehicle in defined contribution plans. And I think this topic is immensely relevant for both advisors and other stakeholders who are familiar with CITs and as we'll discuss might understandably not be so familiar with CITs. This presentation will have something for both of you. By way of background, I'm the deputy general counsel and head of retirement policy at Great Gray Group Group. Before joining Great Gray Group a little more than two years ago, I spent fifteen years in private practice as a lawyer, the last thirteen of which I was at the Covington and Burling law firm where, among other things, I represented and advised employer plan fiduciaries, investment committees in their retirement plan investments. So I come to you all with the perspective both as someone who works for a company that creates investment products, creates collective investment trust funds, as well as the consumer of those products, sophisticated decision makers for both defined benefit and defined contribution plans. I also serve on the board of directors of the pension rights center, which is the premier retiree advocacy organization in the country. And I also can... Through that work and the work I did for the pension rights center pro bono, I think I can bring to you all both the perspective of industry as well as a consumer protection perspective. And I I view collective investment trust through both of those lenses. Well, this presentation, is intended to be... For all audiences, I do want to acknowledge that I'm coming from the perspective of representing Great Gray Group Trust Company. And as deputy general counsel, I'm responsible for overseeing the legal aspects of a collective investment trust business. And as head of retirement policy, my goal and great great goal is to promote retirement policies that will result in more money in participants' accounts and greater retirement security. This presentation in no ways is intended to be a a sales pitch for just Great Gray Group collective investment trust. And we want the audience here to come away from the presentation understanding CITs broadly, but but it would be remiss of me not to explain Great Britain's role within that ecosystem. We are a trustee and provider of collective investment trust. We have over a thousand CITs. And as we'll discuss in this presentation, Great Gray Group's work, particularly in providing access to the small and midsize plan market, has allowed even the smallest plans to access collective investment trust. And as we'll discuss, have the building blocks to create world class investment lineups. We also have been a leader in technology and looking for ways to onboard plans as efficiently as possible. And finally, as a standalone flight and investment trust trust company, we have invested considerable amounts of time and effort and money in the oversight of our collective investment trust as well as the participant experience. But I think we're we're at this very unusual inflection point in the retirement industry. Even though collective investment trusts have been around for over a hundred years, It's only been recently where adoption has really taken off. And we're now in this unusual situation where collective investment trusts are the most prevalent investment vehicle in defined contribution plans. Yet because of that rapid growth, many otherwise sophisticated folks in the retirement industry might be less familiar with collective investment trust. So as I've said at the outset, this presentation is for folks that are familiar with CITs and those who aren't. And I think if you're not familiar with CITs, you're in good company. This slide has the agenda and we'll walk through it, but I'd like you all to take away three key points from this presentation. Collective investment trust afford significant cost savings to participants. Those cost savings are meaningful. Compounded over the course of the career, those cost savings might make the difference between a financially secure retirement and one strap for cash. And finally, those cost savings do not come at a cost. They come with and not at the expense of strict regulatory oversight and investor protection. So with that, let's jump right into it. We're gonna start with all CIT one zero one. What is a CIT? Collective investment trust or CIT is a pooled pooled investment vehicle much like a mutual fund, except it's governed by fiduciary trustees subject to laws that are tailored to the retirement plan marketplace. Collective investment trusts are available to virtually all workplace retirement plans. And on the defined contribution side, workplace retirement plans where there is a curated investment lineup. So think four zero one k's, the federal for savings plan, governmental four thirty seven b's, pooled employer plans. Really, virtually all workplace retirement plans with the exception of four three b's. And as we'll discuss... Or maybe... As I've discussed in other presentations, I'm not sure that'll be a focus here, but there's bipartisan legislation to provide four three b plans with access to CITs. The plans that are not eligible on the screen, but generally in IRA in part because there's no curation of the investment lineup. All... Any and all investments might be available, to an IRA. What are the benefits? Well, the key benefits as we'll discuss are cost savings. There's particular efficiencies that CITs offer that we'll go into more detail as well as ability to create custom fee classes to reflect the different sizes of not just individual plan investors, but, for example, three thirty eight aggregators whose total assets under, management might be taken into account with respect to creating favorable fee classes for their clients. So let me start with where I... Maybe let me emphasize with where I started that CITs are the most prevalent investment vehicle in the fine contribution plans. They have surpassed mutual funds by asset size. And I think as we will discuss further, the trends and the rationale for why that's the case indicate that that gap will only grow larger. So again, if you're not familiar with CITs, you're in the right place because now's a great time to understand them particularly now that more and more plans can access them. What are the factors that are driving CIT popularity? Well, I would say the first, second, and third answer are costs. And these statistics are striking. According to the most recent Morningstar report, the average actively managed mutual fund is three times more expensive than the average actively managed CIT. So 4.4 times difference for the average act... Excuse me, average passively managed mutual fund versus CIT. These cost savings are significant and meaningful for individual participants. The quote that's on the screen is really part of my my origin story. I read it back in 2015. It's part of the preamble to the Obama administration's fiduciary role. And I admit that this this statistic surprised me. Perhaps it shouldn't given the magic of compounding interest. But I read it, over thirty five year career, a 1% difference in fees and expenses reduces retirement account balances by 28%. That means for someone who otherwise would have saved a million dollars by the time of retirement has $280,000 less as a result... Solely as a result of excess fees. Same investments, same allocation, but $280,000 less nearly because of paying additional fees. So I I read that quote right when my mom had retired as a public school teacher and, you know, it really inspired me to start focusing on retirement investing. And I ended up helping my mom and, you know, helping her construct a portfolio that that was more conscious of these. Of course, there's no requirement nor is it often a good investment strategy to always seek the lowest cost investment vehicle. But as we'll discuss, when when it's an apples to apples comparison, having access to the same management, same strategy at a lower cost can have meaningfully different retirement outcomes. And this next slide illustrates what I mean. This this slide, you'll... You see the assumptions on the slide, but, essentially, same investment line... Same investment portfolio, same management, same strategy, same drawdowns, same returns. Everything's the same. The only difference is an investment in the CIT versus the mutual fund. As you see here, merely investing in the lower cost CIT with the savings that it affords compounded over the course of a career as well as through retirement results in a retirement nest egg lasting eight years longer than otherwise would. That could be the difference between someone outliving their assets and enjoying a financially secure retirement. But I I think it's important to, you know, talk about costs within the broader... Within a broader context, both the legal context as well as an investment context. And, you know, the question here is why? Why are the cost advantages driving popularity? And I think there's two reasons for that and I I draw upon my experience advising, or sophisticated retirement plans and investment committees investment decisions. Now it certainly is the case that litigation risk was one of the factors that drove retirement committees to focus on the cost of their investments. But as I said before, cost is not a factor that should be viewed in isolation. There is no legal requirement to only select the lowest cost investments for a plan. In fact, that might not be... That might not satisfy a risk of fiduciary obligations to select investments that will maximize risk adjusted returns net of fees. But I think where the place where costs really matter within a litigation context is if two competing investments are viewed as apples to apples. And a prototypical case illustrating this concept is the Tibble v. Edison case that went all the way up to the Supreme Court. That case involved a plan lineup that consisted of retail share class mutual funds. The plaintiffs in that case alleged that the plan, because of its size, could have accessed lower cost institutional share class mutual funds. And the court concluded that this was an apples to apples comparison. Same management, same manager, same strategy, but it was a fiduciary breach to maintain the higher cost versions of those funds. And I think that same that same fact pattern is on the mind of many retirement plan fiduciaries when they are at an investment committee meeting and their advisor identifies an investment in their plan lineup that's a mutual fund form that's a... You know, cost 70 basis points. And there's a CIT version of that investment option, same manager, generally same strategy at 50 basis points. Again, if you're looking at this as an apples to apples comparison, you can see very readily why fiduciary investment committees would shift from the higher cost mutual fund to the lower cost CIT. So I think that, you know, that litigation overlay is a significant driver in the rapid adoption of collective investment trust. But in my experience, my my former clients, they cared less about the litigation risk and more about the participant outcomes. And then just going back to those prior slides, that statistic, you know, 1% in access fees can result in $280,000 less at the time of retirement. I mean, sophisticated plans, advisors, investment committees, they appreciate that seemingly small cost savings can be encountered over the course of their career to make meaningful differences in retirement outcomes. And that's the reason why they were so mindful and I think why we still continue to see a secular shift from mutual funds to lower cost CIT equivalents. So let's turn to to questions that that we might get about collective investment trust. I think the biggest one is what explains this recent increase in CIT usage. As I mentioned, CITs have been around for almost a hundred years, yet the rapid adoption of CITs is a more real... More recent phenomenon. And I can share with you an anecdote from my own personal experience. I think it occurred about seven years ago. A very prominent act... Retirement academic who I represented for Venmo asked me what I thought about collective investment trust. And I said, well, they're great. They've worked, you know, significant cost savings as we'll discuss. They're subject to a number of, number of regulations that provide significant participant protections. But I said, but they're only available to the largest plans. And even then, with those very large plans, only a small portion of their investment lands could consist of CITs. I remember telling the story of an investment committee meeting I had recently attended where the, you know, mega plan had, say, $80,000,000 invested in an institutional share class mutual fund. The break point for institutional share class would say $10,000,000. So there's 70,000,000 above the break point. And remember, they asked the advisor, you know, we're so much above the break point here. Can we get a lower lower expense ratio to reflect the size of our assets invested in this investment? And the answer was, no, not now. But you get another 20,000,000, you get to a 100,000,000, then you can get into a collective investment trust and you'll see significant cost savings. And I think that was pretty common, you know, back back then where there were large investment minimums that as a practical matter limited CIT access, Again, not only to the largest plans, but just to a subset of those large plan investments where there is a significant asset base generally above a $100,000,000. And what we've seen over the last seven years or so in in Great Gray Group has played significant part of this is a a shift in the market dynamics where investment minimums have been either reduced or eliminated altogether. And That has driven recent CIT adoption. I think that will drive future adoption, and it also is a significant component to what I think is a really extraordinary environment for small and midsize plans to operate in. One that I don't think they'd ever had the option to... They'll... They ever had the ability to be in. Small and mid sized plans now can create world class investment lineups. But I think it would have been the envy of my mega plan clients just five, six, or seven years ago. CIT access is a reason why. Today, even the smallest plans can construct investment lineups exclusively consisting of collective investment trust. In addition, for example, three thirty eight aggregators, OCIOs that represent plans, they have the ability to negotiate with asset managers to get CIT fee classes that reflect their aggregate assets under management. So utilizing a three thirty eight investment manager by a small plan, say that say that asset manager has 30,000,000,000 in Iria AUM and use that 30,000,000,000 to negotiate fee classes. Well, that tiny plan client, that $5,000,000 plan client that sees in that three thirty eight is gonna have the same fee classes in their CITs that a $30,000,000,000 plan might have. And finally, a recent development has been that barriers that have prevented pooled employer plans from always being able to access CITs have been removed. And in a similar fashion, pooled employer plans where many small employers lay band together to achieve economies of scale also might be able to access collective investment trust with fee classes that reflect that scale. I think all three of these factors have gotten us to a point where even the smallest plans can create world class investment lineups and that benefits, you know, all Americans that participate in a workplace retirement plan. This slide, you know, illustrates what I mean. I think the the biggest takeaway here is, again, that CITs have now outpaced mutual funds as the most prevalent investment vehicle in DC plan lineups. According to the most recent survey report, 8,000,000,000,000 out of a total of $58,000,000,000,000 are now in CITs. Previously, CITs had surpassed mutual funds as the most prevalent investment vehicle for target date funds. I think... And then... And I think this, you know, slide illustrates what I'm about to say. All the factors I just described reduced costs, concerns about litigation, desire for improved risk of outcomes, I think all these factors are going to make it likely that the gap in the growth of CITs and the gap between CITs and mutual funds will only grow wider in the coming years. So I think, you know, putting my policy hat on... And I say my policy hat because I I really didn't see this question come up when I was advising retirement plans. But in talking to to policy policy makers, strictly ones who are reasonably less familiar with CITs, they hear about the cost savings that CITs afford and they might reasonably and intuitively think, well, these cost savings have to come at the expense of something. And the answer to that question is no. They come with strict regulatory oversight and investor protections tailored for retirement plan participants. And the best reason... Best way to understand why is to contrast the markets for which CITs and mutual funds serve. Collective investment trusts are exclusively available to institutional retirement, generally retirement plan, but institutional investors. So the investment committee for the four r one k plan, the decision makers for the federal for savings plan, decision makers for governmental 47 b plans or creating investment alliance for their participants. They're not available directly to retail investors. Mutual funds, by contrast, are available both to those institutional investors as well as retail investors, and they're subject to a compliance regime that reasonably is focused on those retail investors. So for example, the prospectuses and disclosures that mutual funds must provide to the retail investors are tailored to ensure that an individual retail investor understands the mutual fund investment. By contrast, CITs are exclusively available in institutional retirement plans and they're subject to a disclosure regime and legal requirements that recognize that reality that CITs cannot be sold directly to retail investors. And this slide, you know, illustrates the overlapping body of law and regulation that apply to collateral investment trust. CITs are subject to state or federal banking laws. They must be operated in order to ensure compliance with securities registration exemptions that... And that compliance strategy generally requires strict oversight by the CIT trustee of the underlying investments as well as investment managers. And really importantly, when the collective investment trust contains ERISA assets, as is typically the case, the collective investment trust itself is subject to ERISA, which means that the CIT trustee and any investment manager it retains must comply with the ERISA fiduciary obligations that courts describe as the highest known to the law, as well as a strict and prescriptive prohibited transaction regime generally designed to manage conflicts of interests. Importantly, when a a mutual fund, even if the mutual fund consists of ERISA plan investors, the mutual fund is not subject to ERISA. And unlike the investment managers of the CIT that contains ERISA assets, the investment managers of the mutual fund are not ERISA fiduciaries. You know, another question that often comes up, are CITs transparent? And the answer to that question is yes. There's there's three, you know, three components and the first two probably are the most important. One key one key feature that drives collective investment trust transparency is department of labor regulations that require standard and vehicle agnostic disclosures. The department of labor have identified the key attributes of investment options on a plan lineup that need to be communicated to participants in order for them to make informed investment decisions. An example of that disclosure along the slide is you'll see the disclosure requires identification on the investment objective of the fund, investment returns relative to a benchmark over prescribed periods of time, and the net expense ratio of the fund. These requirements are are the same regardless of investment vehicle. So whether it's a mutual fund, a CIT, or a different investment vehicle, this key information needs to be disclosed in standardized form for all participants, which frankly is a reason why most participants might not reasonably have know that they're invested in the CIT versus a mutual fund. From their perspectives, they're getting the same information regardless of the investment vehicle. And likewise, from a participant experience perspective, it's often the case that a participant will be on their record keeper's website, and they will have the opportunity to click on links with respect to different investment options that are available in their plan. And what will pop up are fact sheets, which generally contain, again, vehicle agnostic additional information about the investment. The same content in the fact sheet will be provided to participants regardless of whether it's a CIT or a mutual fund. So again, performance over over prescribed periods of time expense ratio. And you also see it goes into a little bit more detail about underlying holdings and key risk and key risk factors. But, again, this information is being is being delivered generally in a in a vehicle agnostic manner. Substep the participant will have the same... Ask us the same information whether it's a mutual fund or a CIT. In addition to those disclosure developments, there's also market developments that have supported this trend. And the most prevalent has been Morningstar, and they're tracking and reporting uncollected investment trust covering over 7,800. And in my experience advising retirement plan decision makers on what investments they should add to investment lineups, I have not experienced any situation where they lack sufficient information to decide whether or not to include a collective investment trust on the investment line. And I think part of part of the reason why is this broad coverage at Morningstar of both CITs as well as mutual funds so that investment managers can make side by side comparisons between two investments with... So excuse me, side by side comparisons, of CIPs, mutual funds, and a full universe of investment options that might be available to the plan. And finally, I do wanna call out Great Jason Group who who played... Or is our predecessor who played a significant role in getting ticker symbols for collective investment for us. And CITs have been searchable on figure symbols since 2019. In general matter, most participants will access information about CITs through the record keeping web platform and not all CITs have figure symbols, but many do. And that is another another mechanism for individuals to get information about the CITs which either they're invested or they might have the ability to invest in because they're included in their plan lineups. So they finally... And I I I actually gave this presentation recently and I literally got this question which warmed my heart. You know, I'm a decision maker for a retirement plan. I'm persuaded. I wanna see it in my investment in my investment lineup. What's next? And I think it is important to point out a material difference between adding a CIT and adding a mutual fund to an investment lineup. Unlike a mutual fund, the CIT requires an additional step, generally entering into what's called a participation agreement in order to access the collective investment trust. The reason why this added step is necessary is that the collective investment trust has to be managed pursuant to group tax group tax rules that allow the collective investment trust to maintain its tax exempt status. One of the requirements to maintain that tax exempt status is only eligible retirement plans, general retirement plans, but only eligible employee benefit plans made access to collective investment trust. So typically, the participation agreement will include representations of the plan to confirm that they're eligible for CITs. In addition, it's very common for the CIT trustee to document their obligations back to the plan including, you know, including if the plan contains as typically the case, or also plan assets, documenting that the CIT manager will serve as a risk of fiduciary and a three thirty eight investment management. So the the document kind of goes both ways, but it it is an additional... It it has historically been an additional friction point. And Great Gray Group has invested a lot of time, technology, and resources into trying to make that onboarding process as smooth as possible. And I think on the slide, you see an example of how Great Gray Group has executed, that approach. So this refers to our our boarding pass platform. So, again, what what are the what are the takeaways to to walk away from from this presentation? One is, if you are less familiar with CITs reasonably because the barriers to accessing CITs have only been removed or or reduced in recent years, now is a great time to understand what they are. I'm not here to say that every plan needs to be invested in exclusively CITs or any particular CITs should be part of a plan lineup. But I do think it's important for hiring time advisors to understand CITs, to consider them. And again, when they conclude there's an apples to apples choice between a CIT and a corresponding mutual fund or another investment vehicle, I think they should think long and hard if they decide not to select the lower costs typically collected investment trust. But again, why does all this matter? I think it really comes down to the participants. We're now in a situation where even the smallest plans can create world class investment lineups. CIT access is almost universal now. And that means that the cost savings that they afford can be passed on to participants, which I think over time will result meaningfully improved retirement security outcomes. So at Great Gray Group, we're we're thrilled to deliver a product that aligns with that good retirement policy goal. Helping helping plans have access to a diverse array of funds in a CFT wrapper that offers significantly reduced costs. So at Great Gray Group, we're we're very excited about this product and where it's going and we would be delighted to continue the conversation with any of you all. So if you have any further questions, please don't hesitate to reach out to us. Thanks so much.