![]() ![]() ![]() Investment manager appointment procedures must be satisfied.As a result, unlike mutual funds, plan fiduciaries should never invest plan assets into a CIT before they have carefully reviewed the terms of the CIT set forth in the CIT’s declaration of trust and related trust documentation. For example, while some CITs provide daily valuation and liquidity, others may allow redemptions only on a quarterly basis or less frequently, or may impose lock up periods if their assets are less liquid. CITs, on the other hand, enjoy a significant amount of flexibility with respect to what they invest in and how, leverage, trading frequency and other key terms and features. While the extensive regulation of mutual funds under the Investment Company Act of 1940 and other securities laws increases their administrative and compliance expenses, it also ensures a high degree of uniformity across mutual funds with respect to key terms and features such as liquidity, trading frequency, leverage limitations, valuation, expense calculation and reporting and disclosure requirements. Trust terms may vary and must be reviewed.This blog provides a number of examples of issues that plan fiduciaries who are not familiar with CITs could miss. But there are many other differences between CITs and mutual funds that plan fiduciaries should understand when adding an investment option structured as a CIT to their 401(k) plan line up. The primary reason for the new popularity of CITs is that they often have a lower expense ratio than mutual funds as a result of being free from the extensive regulatory requirements imposed on mutual funds under the securities laws. ![]() In recent years, CITs are enjoying a resurgence for defined contribution plans as an alternative to mutual funds in a 401(k) plan line up. A collective investment trust (“CIT”) is a longstanding vehicle used by banks and trust companies to commingle the assets of qualified retirement trusts for investment. ![]()
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