There are many investment services, but the ones that count are the services that deliver. In the world of retirement investment and savings, collective investment trusts, stand out as a means by which savers and investors can combine their assets with others to leverage larger returns with greater safety. The collective investment trust (CIT) is frequently available for government pension plan choices, 401Ks, and similarly restricted retirement account scenarios where savers are limited to pooled accounts versus independent choices like public stocks. They are most commonly seen in the form of target-date investments.


Where to Find CITs

CITs don’t mix their funding sources with non-retirement monies. They are entirely made up of pension accounts, retirement accounts, pre-tax savings, stock bonuses, profit sharing, and similar, all in some kind of retirement account status under a specified retirement savings account plan, i.e. 401Ks, 457 etc. This makes the investment and gains exempt from taxes upfront. Savers are only taxed when they eventually withdraw from their retirement account, ideally when they are no longer working and in a lower tax bracket as a result.

Institutional agencies are the primary offerors of access to CITs. They are not allowed to be offered through regular brokerages or direct consumer access. Instead, CITs are frequently found as a selection in a particular plan, open only to the beneficiaries of that given plan. Employee retirement plans are a common example, with a closed system for enrollment limited just to the employees of a given company and its plan administrator.

How CITs Work and are Administered

In a lot of ways, CITs function like a mutual fund by consolidating various savings together to leverage bigger and broader gains with the benefit of more diversity. The cost of administration and related investment management services is very low, comparable to mutual funds, and they are managed by a recognized bank or a type of trust entity. Both types are fully regulated by the U.S. Office of the Comptroller of the Currency, otherwise referenced as the OCC. In some cases, a state regular may be involved in lieu of the federal government.

The role of the trustee as administrator functions in a discretionary manner. The agency can directly or through third parties administer the funds of a CIT, but their accountability is centered on a fiduciary oversight responsibility, regardless of whether the working activities are addressing transfers or portfolio accounting, or trades. The same trustee entity is also responsible for compliance with any CIT-related regulations as well as managing the pooled account through shares representing the value of each account included in the same. Where there is revenue and gains, the trustee is the party in charge of the equitable distribution of those gains based on the makeup of the operating pool. Where the CIT management changes direction with regard to investment strategy, the trustee is also responsible for explaining that strategy in related documentation, especially where the direction deviates from a previously documented strategy.

The trustee also has investment permission to enter into financial tools and assets with the pooled account’s resources as well as provide pool participants with information on the facts of the pool and how it is placed in the market.

Finally, the CIT trustee is expected to take care of all policy statements, adviser activity monitoring, annual audited reports, governmental reports, and tax reporting for the pooled account.

CITs are Still Trusts, Not Funds

All of the above operate under a defined legal status known as a Declaration of Trust for the given CIT. Given the highly regulated nature of CITs, banks have traditionally been the primary entities sought after for the trustee role, especially since so much of their reporting is already consistent and in place to accommodate the high level of documentation needed for CIT administration. However, the appeal of CITs is growing, and they are appearing more and more in other investment options as well.