Overtaking Mutual Funds: The Hidden Rise and Risk of Collective Investment Trusts
abstract. The retirement security of millions of American workers is increasingly tied to an investment vehicle that most have never even heard of, and whose dramatic rise has received almost no regulatory scrutiny in recent decades. With nearly seven trillion dollars in assets, “collective investment trusts” (CITs) are rapidly replacing mutual funds on the investment menus of employer-sponsored retirement plans. Individuals who once had staked their retirement nest eggs on the returns from mutual funds have had more and more of their savings transferred into bank-sponsored CITs, which now hold nearly thirty percent of all assets in defined-contribution plans, up from just thirteen percent a decade ago. Legislation to expand access to CITs is currently pending in Congress. Yet despite such dramatic growth and economic significance, CITs—which look and act a lot like mutual funds but are sponsored by banks and subject to oversight by the Comptroller of the Currency—have been largely overlooked, with almost no critical analysis of CITs as investment funds, as institutional investors, and as increasingly important participants in an interconnected financial system.
This Essay tells the story of a century-old bank product seizing on regulatory gaps and exploding in popularity among retirement plans seeking cheaper investment options for individual participants. The dramatic growth of CITs raises new and critical questions about the tradeoffs associated with CITs: in particular, the benefits of lower fees versus the individual and systemic risks that may stem from lower transparency, fragmented regulatory oversight, fewer restrictions on permitted investments, and centralized control in the hands of bank trustees. In identifying these tradeoffs, this Essay shines a light on the policy implications for retirement savers and builds the foundation for future scholarship to improve our understanding of this behemoth investment vehicle, whose growth and impact have gone largely unexamined over the last four decades.
author. Associate Professor of Law & Donohue Faculty Fellow, Boston College Law School. Thank you to Mary S. Bilder, William A. Birdthistle, Felipe F. Cole, Jens C. Dammann, Joseph A. Franco, Mira Ganor, Renee Jones, Ray D. Madoff, Patricia McCoy, Elizabeth Pollman, Diane Ring, Roberta Romano, Chester S. Spatt, Andrew Verstein, and the participants of the 2023 Berkeley Forum on Corporate Governance, the 2024 N.Y.U./Penn Conference on Law and Finance, the UCLA Business Law Workshop, the University of Texas Business Law Workshop, the 2024 American Law & Economics Association Annual Meeting, and the Boston College Law School Summer Faculty Workshop for helpful feedback. Thank you also to Karen Breda, Scott Sheltra, and the Yale Law Journal editors. All errors are my own.
Introduction
The retirement security of millions of American workers increasingly depends on a little-known investment vehicle whose dramatic spread across retirement-plan portfolios has received almost no regulatory scrutiny over the last four decades.1 With nearly seven trillion dollars in assets, “collective investment trusts” (CITs)2 are rapidly replacing mutual funds on the investment menus of employer-sponsored retirement plans in both the private and public sectors.3 Individuals who once had staked their retirement nest eggs on the returns from mutual funds have had more and more of their savings transferred into bank-sponsored CITs, which now hold nearly thirty percent of all assets in defined-contribution plans, up from just thirteen percent a decade ago.4 With trillions of dollars in assets and with pending legislation that would expand their reach further, CITs are also growing in size and power, not only as retirement-savings vehicles, but also as institutional investors acting without the accountability or transparency requirements applicable to mutual funds.5
What are CITs? Given the lack of familiarity with the term, CITs are commonly defined by reference to or by comparison with the very thing that they are replacing: the mutual fund.6 For example, they have been described as “the functional equivalent” of mutual funds,7 as investments that “look and feel a lot like a mutual fund,”8 and as “the biggest competitive threat” to mutual funds in the defined-contribution market.9
But CITs are not mutual funds. Although the two are “functionally similar”—both offer pooled investment vehicles that combine assets from eligible investors into a single fund with a specific investment strategy—mutual funds and CITs are subject to very different governance and oversight regimes.10While mutual funds are set up by investment-management companies,11 widely available to the general public, and regulated by the Securities and Exchange Commission (SEC),12 CITs are set up by banks or trust companies,13 available to individuals only through employer-sponsored retirement plans,14 and regulated primarily by the Office of the Comptroller of the Currency (OCC) and, in some cases, by the Department of Labor (DOL).15
Relative to mutual funds, CITs face fewer restrictions on the
types and composition of permissible investments16 and fewer registration and
reporting requirements.17
The Investment Company Act of 1940 and the Securities Act of 1933 exempt CITs
and CIT interests from registration with SEC and from substantive requirements
under those laws.18 Since they are
normally exempt from SEC registration, CITs do not need a registration
statement or a prospectus for prospective purchasers.19 Accordingly, there are no
registration fees to be paid to SEC and no registration statement subject to
SEC review.20Similarly,
although CITs, like mutual funds, hold shares of public companies and exercise
the corporate voting rights afforded to such shares, CITs are not subject to
the securities-law requirements to disclose their voting records publicly or
give fund investors “voice” in fund governance.21 Instead, CITs entrust
management responsibility to the bank trustees, who cast votes on behalf of the
trusts.22 As a result, “it is faster and
cheaper to create and launch a CIT than a comparable mutual fund.”23
The lower compliance and marketing costs are credited as a key reason for CITs having lower fees than comparable mutual funds.24 Morningstar, the investment research firm whose subsidiary provides advisory services to CITs, reports that “[w]hen comparing the net expense ratio of CIT tiers and mutual fund share classes of the same strategy, CITs are cheaper 88% of the time; and considering only the least-expensive CIT tier and mutual fund share class, CITs are cheaper 92% of the time.”25 According to Morningstar calculations, “[a]cross all investment strategies, as of year-end 2020, the average passive CIT costs less than the average passive mutual fund. Similarly, the average active CIT costs 60% less than the average active mutual fund.”26
These cost differences matter because even seemingly small differences
are compounded over decades.27 In an environment where
retirement-plan sponsors (that is, employers) have faced significant litigation
risk over excessive retirement-plan
fees,28 the existence of lower-fee options that offer the
same or similar investment strategies to those offered by mutual funds has
precipitated the exodus from mutual funds into CITs. Importantly, the
management companies most commonly associated with mutual funds—including
Fidelity, Vanguard, and State Street—have all started to offer CITs through
affiliated trust companies or banks.29
The growth of CITs over the last decade has outpaced predictions,30 with CITs now “a standard part of the largest plans in the U.S.” and increasingly present in plans of all sizes31 in both the public and private sectors.32 Plan menus that once included primarily mutual funds now increasingly offer CITs. Target-date funds, which have been particularly popular on retirement-plan investment menus, are now offered through CIT vehicles rather than through mutual funds.33 The same is true for equity, debt, and alternative investment strategies. Consider, for example, the Facebook/Meta Platforms Inc. 401(k) Plan. In 2009, nearly all the assets in the plan were invested in mutual funds.34 By 2021, nearly all the assets in the plan were invested in CITs.35
According to Morningstar, “[t]he largest plans in the U.S. started to abandon mutual funds 10 years ago,” and CITs have grown from thirteen percent of assets in defined-contribution plans in 2012 to twenty-eight percent of assets in 2021.36 The growth of assets in CITs has dramatically outpaced the growth of assets in retirement plans generally and the growth of assets in mutual funds.37 Even smaller employers have begun to add CIT options on plan menus,38 while CIT sponsors and industry advocates have been lobbying Congress to make CITs available to retirement plans in the nonprofit and education sectors, which have not been allowed to participate in CITs to date.39 Legislation to expand access to CITs was reintroduced in Congress in 2025.40
The dramatic rise of CITs has not been accompanied by a corresponding increase in scholarly or regulatory analysis. Indeed, although CITs were the subject of robust congressional and scholarly examination in their early years and through the 1970s, they have received scant scholarly or regulatory attention over the last four decades.41 This Essay begins to fill the gap and makes the case that CITs—although not squarely within the domain of any one academic discipline—should be of interest to scholars of banking law, corporate law, securities law, and employee-benefits law. Indeed, their interdisciplinary nature makes CITs an important case study in financial instruments operating at regulatory crossroads and taking advantage of the challenges of interagency coordination.
Part I traces the evolution of CITs in the United States, with a particular focus on the dramatic growth of CITs in defined-contribution retirement plans. It shows how over the last hundred years, a type of bank trust originally intended for the fiduciary administration of small accounts has evolved and exploded into a powerful industry managing seven trillion dollars of retirement savings belonging to American workers. The recent exodus of assets from mutual funds into CITs can be explained by three key drivers. First, employer interest in cheaper investment options for plan menus, driven in part by increased retirement-fee litigation, has bolstered demand for CITs.42 At the same time, the competition for the business of managing retirement assets has encouraged not only banks but also mutual-fund management companies to ramp up their CIT offerings. The management companies that once lobbied intensely against CITs have set up trust subsidiaries and affiliated banks to establish their own CITs. Once in the CIT business, the financial institutions have likely come to appreciate certain regulatory differences, such as the ability to cast contentious or politically fraught proxy votes without having to report their voting records to the public.43 In fact, CIT providers have been lobbying Congress to expand access to CIT products.44
After describing the evolution of CITs, the Essay turns to the current state of the CIT market. Part II first synthesizes available data on the prevalence of CITs, their sponsors, and the underlying investments. It then reviews the unique regulatory framework for CITs and shows that what has made CITs attractive to industry participants may also explain the lack of regulatory and academic attention to these investment vehicles. Next, Part II revives the debate about “functional regulation” and the question whether financial instruments that perform similar functions should be regulated similarly. This debate, which featured CITs quite prominently in the 1960s and 1970s, has waned in the ensuing decades. The recent dramatic growth of CITs merits reopening the discussion.
The Essay then evaluates the impact of CITs, which, in the absence of “functional regulation,” are subject to a regulatory regime that is strikingly different from the one applicable to mutual funds. Part III situates CITs in the theoretical framework for investment funds and shows that employers play an outsize role in protecting the interests of individual investors in CITs. It examines CITs’ growing shareholder activism, brings to light the lack of proxy-vote disclosure requirements, and explores the risks of “financial fires” stemming from regulatory gaps in an interconnected financial system.45
Part IV then turns to the benefits and costs of CITs as a retirement-savings vehicle. It emphasizes that the regulatory framework for CITs predates the rise of defined-contribution retirement plans in which individual participants bear the investment and longevity risks. Although lower fees in retirement plans are an important and attractive feature, the lower fees currently come at the expense of transparency and disclosure, including public disclosure about CIT fees. In the absence of robust public disclosure and public familiarity with CITs, there is increased pressure on plan sponsors (that is, employers) to negotiate and monitor custom fee arrangements with bank trustees. At the same time, the relatively limited public disclosure reduces monitoring by third parties and makes it more difficult for plaintiffs to bring litigation challenging the inclusion of CITs on retirement-plan menus. The Essay concludes with a call for closer examination of the tradeoffs in the recent embrace and potential expansion of CITs.
See Elizabeth O’Brien, These Sneaky Trusts Are Hiding in Your 401(k), Money (June 21, 2017), https://money.com/money/4807790/low-fee-401k-choices [https://perma.cc/SJ4P-TES6] (“There’s a stealth investment vehicle that’s making its way into more 401(k) plans: the collective investment trust (CIT). You might own one or more, especially if you work for a large company, and not even know it.”); Robert S. De Leon, A Primer on Collective Investment Trusts, 41 Sec. Regul. L.J. 5, 5 (2013) (“[T]o most Americans, and many securities lawyers, CITs remain a mystery.” (footnote omitted)); Robert Steyer, Collective Investment Trusts No Longer Just for Big Dogs, Pensions & Invs. (July 18, 2022, 12:00 AM), https://www.pionline.com/defined-contribution/collective-investment-trusts-no-longer-just-big-defined-contribution-plans [https://perma.cc/X8XU-8Z97] (reporting that “[o]nce the province of the biggest of the big defined contribution plans, collective investment trusts have been showing up in merely large plans, midsize plans and small plans” and noting that “the CIT market share has increased every year”); Jane Hodges, Cheaper Choice in 401(k)s, Wall St. J. (Aug. 2, 2010, 12:01 AM ET), https://www.wsj.com/articles/SB10001424052748704198004575310551356374466 [https://perma.cc/K5PH-S9V5] (“An increasing number of 401(k) plans offer investment options that look a lot like the typical mutual funds. But they’re actually a whole different animal—and investors would be smart to know the difference.”).
Gary Gensler, Chair, Sec. & Exch. Comm’n, “Bear in the Woods” Remarks Before the Investment Company Institute (May 25, 2023), https://www.sec.gov/newsroom/speeches-statements/gensler-remarks-investment-company-institute-05252023 [https://perma.cc/T8JT-WR9H] (“Collective investment funds are estimated to be $7 trillion, $5 trillion at the federal level and $2 trillion at the state bank level.”). In addition to the estimated $7 trillion in CITs, Gary Gensler also noted that there is over $300 billion in short-term investment funds (STIFs), which are CITs that are functionally similar to money-market mutual funds. Id. Like money-market funds, STIFs invest in instruments with short maturity duration. Id.
See Lia Mitchell, 2023 Retirement Plan Landscape Report: An In-Depth Look at the Trends and Forces Reshaping U.S. Retirement Plans, Morningstar 24 (Apr. 2023), https://assets.contentstack.io/v3/assets/blt4eb669caa7dc65b2/blt08a2763a905290f6/641e129c67e4e0582e837c85/Morningstar_Retirement-Landscape-Report-2023_Update.pdf [https://perma.cc/LBN7-6P9U].
See, e.g., Clara Hudson, Disney, Apple Investors May Vote on AI Proposals, SEC Says, Bloomberg L. (Jan. 4, 2024, 3:17 PM EST), https://news.bloomberglaw.com/esg/disney-apple-shareholders-may-vote-on-ai-proposals-sec-says [https://perma.cc/2RNS-DBTL] (describing the shareholder proposals submitted to Apple and Disney by “AFL-CIO Equity Index Funds, a collective investment trust for union members’ pension plans”). The BNY Mellon AFL-CIO Index Strategies offer “competitively priced, low cost solutions” and “[p]roxies are voted in accordance with AFL-CIO Proxy Voting Guidelines.” See BNY Mellon AFL-CIO Index Strategies, Bny Mellon Inv. Mgmt. [1] (2022), https://aflcio-itc.com/wp-content/uploads/2022/09/AFL-CIO-Index-Funds-Handout.pdf [https://perma.cc/EJ8G-CUHV]. The Bank of New York Mellon serves as trustee and discretionary investment manager for the fund. See id. at [2].
For an overview of the history and structure of mutual funds, see generally William A. Birdthistle, Empire of the Fund: The Way We Save Now (2016). William A. Birdthistle describes mutual funds as follows:
A mutual fund is a financial tool that gathers money from several different investors and uses the combined pool of assets to buy a portfolio of stocks, bonds, or other investments. If the portfolio is successful and generates financial gains, each of the investors in the fund will enjoy a proportional share of those positive returns. If, on the other hand, the portfolio declines, then the investors must share in the losses—as well as in the transaction costs incurred by working jointly through a mutual fund.
Id. at 19. As of 2023, U.S. mutual-fund holdings totaled approximately $25.5 trillion. 2024 Investment Company Fact Book: A Review of Trends and Activities in the Investment Company Industry, Inv. Co. Inst. 43 (2024), https://www.icifactbook.org/pdf/2024-factbook.pdf [https://perma.cc/D76A-4CHC].
William P. Wade, Bank-Sponsored Collective Investment Funds: An Analysis of Applicable Federal Banking and Securities Laws, 35 Bus. Law. 361, 370 (1980); see also Erach Desai & Jason Dauwen, Collective Investment Trusts—A Perfect Storm, DST Sys. 6 (Mar. 2017), https://contentz.mkt2225.com/lp/1186/214031/AM-WP-CollectiveInvestmentTrustsAPerfectStorm-030317.pdf [https://perma.cc/RTV4-T63N] (“CITs are essentially a functional equivalent of mutual funds—basically another comingled investment vehicle.” (emphasis omitted)).
Hannah Glover, Collective Investment Trusts Muscle in on DC Market, Fin. Times (Sept. 13, 2009), https://www.ft.com/content/f8232374-9eff-11de-8013-00144feabdc0 [https://perma.cc/2DM2-CM4C] (quoting an analyst with Cerulli Associates).
Div. of Inv. Mgmt., Protecting Investors: A Half Century of Investment Company Regulation, U.S. Sec. & Exch. Comm’n 119 (1992), https://www.sec.gov/divisions/investment/guidance/icreg50-92.pdf [https://perma.cc/CW4S-W3HU].
See Off. of Inv. Educ. & Advoc., U.S. Sec. & Exch. Comm’n, Sec. Pub. 182 (12/16), Mutual Funds and ETFs: A Guide for Investors 4, https://www.sec.gov/investor/pubs/sec-guide-to-mutual-funds.pdf [https://perma.cc/68TR-D8FW] (“A mutual fund is an SEC-registered open-end investment company that pools money from many investors and invests the money in stocks, bonds, short-term money-market instruments, other securities or assets, or some combination of these investments.”).
CITs may be established by trust companies or banks under state law or by national banks under federal law. The Office of the Comptroller of the Currency (OCC), which uses the term “collective investment funds” to refer to CITs, notes that such funds “are offered not only by national banks but also by insured state member and nonmember banks, thrifts, and state-chartered uninsured trust companies.” Collective Investment Funds: Risk Management Elements: Collective Investment Funds and Outsourced Arrangements, Off. Comptroller Currency (Mar. 29, 2011), https://www.occ.gov/news-issuances/bulletins/2011/bulletin-2011-11.html [https://perma.cc/UL2R-ZA7L]. OCC regulations permit a “national bank” to invest assets that it holds as fiduciary in “collective investment funds.” 12 C.F.R. § 9.18(a) (2024). OCC explains that “[a] collective investment fund (CIF) is a bank-administered trust that holds commingled assets that meet specific criteria established by 12 CFR 9.18. The bank acts as a fiduciary for the CIF and holds legal title to the fund’s assets.” Collective Investment Funds, Off. Comptroller Currency, https://www.occ.treas.gov/topics/supervision-and-examination/capital-markets/asset-management/collective-investment-funds/index-collective-investment-funds.html [https://perma.cc/9Y3T-SWTK].
Whereas mutual funds are marketed and available to retail or individual participants, CITs are only available to individuals through employer-sponsored retirement plans. Desai & Dauwen, supra note 7, at 8. Only certain types of retirement plans (such as 401(k) plans, 457(b) plans, qualified profit-sharing plans, qualified pension plans, and Taft-Hartley plans) are currently allowed to participate in CITs. Id. at 10.
See infra Part II. When CITs are established by federally chartered banks or trust companies, the CITs are regulated by OCC. See Kristin O’Donnell, Ryan Mullaney & Tom Peattie, Why Collective Investment Trusts Are Gaining Traction Within DC Retirement Plans, Wellington Mgmt. (Aug. 2022), https://www.wellington.com/en/insights/collective-investment-trusts-dc-retirement-plans [https://perma.cc/7KHP-V4UA]. State authorities regulate CITs sponsored by state-chartered banks or trust companies. Id. The Department of Labor (DOL) also has authority over some CITs through its oversight of the retirement plans that invest in CITs. Id. If a plan that is subject to the Employee Retirement Income Security Act (ERISA) of 1974 includes a CIT as an investment option for the plan, the CIT trustee is considered an ERISA fiduciary and its conduct in managing the CIT must comply with ERISA’s fiduciary standards. Id. The trustee of a mutual fund, in contrast, would not be required to comply with these ERISA standards. Id.; see also Noah Zuss, CITs Have Different Fiduciary Implications than Mutual Funds, planadviser (Mar. 30, 2022), https://www.planadviser.com/cits-different-fiduciary-implications-mutual-funds [https://perma.cc/74CU-B4GC] (“CITs are plan asset vehicles for ERISA purposes, which means that ERISA standards of prudence and loyalty apply to those who manage and exercise discretionary authority over a plan’s assets . . . . Therefore, trustee banks responsible for managing CIT assets are subject to ERISA’s fiduciary standard.”).
For example, unlike mutual funds, CITs may invest in futures and commodities, commercial real estate, and private-equity interests without regulatory restrictions on the amount of such investments. See De Leon, supra note 1, at 5. CIT providers emphasize the availability of “innovative investment strategies.” See, e.g., Collective Investment Trust Solutions, State St., https://www.statestreet.com/us/en/asset-owner/solutions/collective-investment-trust-solutions [https://perma.cc/P7HP-7HMR] (noting that “CITs can offer strategies with broader flexibility of investment options than 1940 Act structures,” including but not limited to “derivatives, bank debt, ETFs, private equity and real estate,” and emphasizing that “CITs are not constrained by an illiquidity cap found in other investment vehicles”); Alex Ortolani, Fidelity Launches CITs with Alternative Investment Exposure, planadviser (Nov. 1, 2023), https://www.planadviser.com/fidelity-launches-cits-alternative-investment-exposure [https://perma.cc/L4JL-VRTM] (“Nation’s largest recordkeeper seeks to bring direct real estate investing to plan participants.”).
See, e.g., Thomas Roberts & James E. Bowlus, Collective Investment Trusts and Good Governance Considerations, Wilmington Tr. 1 (2022), https://www.wilmingtontrust.com/content/dam/wtb-web/pdfs/cit-whitepaper-2022.pdf [https://perma.cc/U3FK-U5D5] (“[T]he exemptions from registration under the federal securities laws available to CITs may afford them cost advantages relative to their mutual fund counterparts, because CITs can avoid the expenses associated with mutual fund registration, prospectus, and annual report updating and mailing, and the like.”).
See, e.g., Jeff Sommer, Want a Bigger Say on Corporate Behavior? Move Your Money, N.Y. Times (Dec. 12, 2019), https://www.nytimes.com/2019/12/12/business/corporate-behavior-move-your-money.html [https://perma.cc/3YH5-F9C3] (arguing that “[m]illions of people have a stake in corporate America through mutual funds” and reporting on Morningstar’s analysis of “every proxy vote cast by the big mutual fund companies in 2019”). The analysis described in the article is possible because registered investment funds (e.g., mutual funds) are subject to disclosure requirements under the Investment Company Act (ICA) of 1940. See Disclosure of Proxy Voting Policies and Proxy Voting Records by Registered Management Investment Companies, 68 Fed. Reg. 6564, 6564 (Feb. 7, 2003) (interpreting “the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940 to require registered management investment companies to provide disclosure about how they vote proxies relating to portfolio securities they hold”).
Mitchell, supra note 4, at 25 (“This difference in costs is mostly because CITs are not marketed nor regulated in the way that mutual funds are.”). Industry publications provide statistics on the cost savings associated with CITs. See, e.g., What’s New? Even Lower Costs and a New Retirement Income Option, Vanguard (Sept. 28, 2021), https://institutional.vanguard.com/insights-and-research/perspective/whats-new-even-lower-costs-and-a-new-retirement-income-option.html [https://perma.cc/NMY2-HUFS]; O’Donnell et al., supra note 15 (“[F]ees for CITs may be between 10 and 30 basis points (bps) lower than for mutual funds of similar composition.”).
Mitchell, supra note 4, at 25. Morningstar also reports that “[t]he asset-weighted average expense ratios of both active and passive CITs are less than half those of their mutual fund counterparts.” Id. These calculations draw on Morningstar’s investment database, which, in the case of CITs, is voluntary for the asset managers. See How Does Morningstar Gather Separate Account/Collective Investment Trust Data?, Morningstar Off. (2023), https://awgmain.morningstar.com/webhelp/FAQs/gather_SA_CIT_data_FAQ.htm [https://perma.cc/Q892-5SMP]; infra note 143.
As the Department of Labor has warned, over thirty-five years, a “1 percent difference in fees and expenses [reduces an] account balance at retirement by 28 percent.” A Look at 401(k) Plan Fees, U.S. Dep’t of Lab. 2 (Sept. 2019), https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/a-look-at-401k-plan-fees.pdf [https://perma.cc/LB6B-XD86].
See Tim McLaughlin, U.S. Mutual Funds Cut Expenses by Shifting Billions to Trusts, Reuters (Mar. 4, 2015 1:00 AM EST), https://www.reuters.com/article/idUSL1N0W51V8 [https://perma.cc/35MV-KK6Q] (“Mutual fund companies, including No. 2 Fidelity Investments, have slashed fees on their most popular funds by shifting billions of dollars into collective trusts not regulated by the U.S. Securities and Exchange Commission.”); Robert Steyer, Among Target-Date Funds, CITs Are Now Bigger than Mutual Funds: Morningstar, Pensions & Invs. (Aug. 9, 2024), https://www.pionline.com/defined-contribution/collective-investment-trust-target-date-funds-now-have-more-assets-mutual-fund [https://perma.cc/XVS2-CZ8C] (reporting that Vanguard Target Retirement is “the largest CIT target-date series”).
See, e.g., De Leon, supra note 1, at 5 (writing in 2013 that “[a]ssets in collective investment trusts (‘CITs’) are projected to reach $1.4 trillion, or roughly 20% of the defined contribution market, in 2020”); McLaughlin, supra note 29 (“In recent years, research firms have estimated that CIT assets would top $2 trillion in 2015. But a Reuters analysis of disclosures by trust banks, including ones operated by BlackRock Inc, State Street Inc and Wellington Management, reveal that figure was easily surpassed in 2014.”).
Mitchell, supra note 4, at 4, 23 (noting that “[t]he largest plans in the U.S. . . . today hold nearly 88% of all the collective investment trust, or CIT, assets” and emphasizing that “CITs have doubled their share of the pie among the largest plans from 17% of assets in 2012 to 36% in 2021”). Lia Mitchell also notes that “[u]sage among plans with fewer than $500 million in assets grew by more than 10% in 2020 and 2021, suggesting CITs may finally break the smaller plan barrier soon.” Id. at 30.
For examples of CITs in both public and private plans, including the federal-government Thrift Savings Plan, see Employee Benefits Security Administration: Performance Audit of Thrift Savings Plan Investment Management Operations, KPMG, at I.14 (Sept. 4, 2020), https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/reports/thrift-savings-plan-audit/investment-management-operations-2020.pdf [https://perma.cc/WJF6-R7UY], which references BlackRock’s TSF Fund Series and Collective Trust Funds; Fund Fact Sheets: CalPERS 457 Plan, CalPERS 11, 14, 17, 20, 23, 26 (June 30, 2024), https://calpers-sip.com/PDF_InvestmentOps/CalPERS_FFS.pdf [https://perma.cc/B8XE-L4KQ], which describes the investment options as CITs; and Press Release, AFL-CIO, AFL-CIO Teams Up with Wilmington Trust and BNY Mellon to Expand Retirement Planning Options for Millions of Americans (Mar. 22, 2021), https://aflcio.org/press/releases/afl-cio-teams-wilmington-trust-and-bny-mellon-expand-retirement-planning-options [https://perma.cc/N4YE-XT64], which announces “a groundbreaking collaboration . . . to distribute 12 new target date collective investment trust (CIT) funds, expanding retirement planning options for its 56 unions and 12.5 million members” and notes that “[v]oting proxies for each fund conform with the AFL-CIO’s Proxy Voting Guidelines, per an independent proxy voting fiduciary.”
A target-date fund adjusts the mix of underlying investments based on the anticipated retirement date of the retirement-plan participant. Megan Pacholok, CITs Dethrone Mutual Funds as the Most Popular Target-Date Vehicle, Morningstar (Aug. 8, 2024), https://www.morningstar.com/funds/cits-dethrone-mutual-funds-most-popular-target-date-vehicle [https://perma.cc/RR8Q-P4ER] (reporting that “as of June 2024, CITs inched past mutual funds” with “50.5% . . . of target-date assets”).
O’Donnell et al., supra note 15, (“From 2015 to 2020, total 401(k) plan assets grew by roughly 62%, while 401(k) assets held in CITs saw growth of 138%.”). Morningstar reports that from 2012 to 2021, “[defined-contribution] plan CIT assets more than quadrupled from $463 billion to $2.25 trillion, while [defined-contribution] plan mutual fund assets merely doubled from $1.52 trillion to $3.25 trillion.” Mitchell, supra note 4, at 24.
Mitchell, supra note 4, at 30. A recent Fidelity survey revealed that the “the percentage of sponsors beginning to offer CITs had a 10% annual growth rate from 2018 to 2023,” with 29% of sponsors surveyed “considering offering CITs for the first time” and 28% of sponsors surveyed considering “increasing the number of CITs.” Brian Anderson, 4 Key Findings from Fidelity’s Plan Sponsor Attitudes Survey, 401kSpecialist (Aug. 28, 2023), https://401kspecialistmag.com/4-key-findings-from-fidelitys-plan-sponsor-attitudes-survey [https://perma.cc/T4VP-3NK8].
Desai & Dauwen, supra note 7, at 9 (stating that “403(b) plans for non-profit organizations” are not eligible to invest in CITs). In 2020 Senate hearings focused on “Investigating Challenges to American Retirement Security,” the President of Retirement Plans for Nationwide stated that they “are excited about the opportunity to make collective investment trusts available to 403(b) plans to help more American workers save, especially those in education, health care, and charitable organizations.” Investigating Challenges to American Retirement Security: Hearing Before the Subcomm. on Soc. Sec., Pensions, & Fam. Pol’y of the S. Comm. on Fin., 116th Cong. 10 (2020) (statement of Eric Stevenson, President, Retirement Plans, Nationwide, Columbus, OH); see also Jasmin Sethi, Lia Mitchell & Aron Szapiro, CITs: A Welcome Addition to 403(b) Plans, Morningstar 1-2 (June 2020), https://assets.contentstack.io/v3/assets/blt4eb669caa7dc65b2/blt2c1dd8bcdf62c0c9/61e735e574b241531110d688/403b_CIT_WP.pdf [https://perma.cc/7YS6-LLLF] (expressing support for legislation to allow “403(b) plans to invest in CITs” but recommending changes to the proposed legislation to incorporate “additional protections for 403(b) plan participants”); Remy Samuels, Bill to Allow CITs in 403(b) Plans Introduced in Senate, plansponsor (Aug. 1, 2024), https://www.plansponsor.com/bill-to-allow-cits-in-403b-plans-introduced-in-senate [https://perma.cc/WS6P-9PYX] (reporting the introduction of the bill, which would allow 403(b) plans to include CITs).
Press Release, Sen. Katie Britt, U.S. Senators Katie Britt, Raphael Warnock, Bill Cassidy, Gary Peters: Americans Deserve Level Playing Field on Retirement Savings Opportunities (Feb. 6, 2025), https://www.britt.senate.gov/news/press-releases/u-s-senators-katie-britt-raphael-warnock-bill-cassidy-gary-peters-americans-deserve-level-playing-field-on-retirement-savings-opportunities [https://perma.cc/CS7E-FUBS] (announcing the reintroduction of the Retirement Fairness for Charities and Educational Institutions Act). This legislation was previously introduced in 2023 and 2024. Brian Croce, House Committee Advances Bill Allowing 403(b) Plans to Offer CITs, Pensions & Invs. (May 25, 2023, 2:13 PM), https://www.pionline.com/defined-contribution/house-committee-advances-bill-allowing-403b-plans-offer-cits [https://perma.cc/6VQY-SKN4] (noting that the bill “would amend federal securities law to authorize the use of CITs . . . within 403(b) plans” and reporting Vanguard’s support for it); Press Release, Sen. Katie Britt, U.S. Senators Katie Britt, Raphael Warnock, Bill Cassidy, Gary Peters Introduce Retirement Fairness Legislation for Non-Profit Employees (Aug. 1, 2024), https://www.britt.senate.gov/news/press-releases/u-s-senators-katie-britt-raphael-warnock-bill-cassidy-gary-peters-introduce-retirement-fairness-legislation-for-non-profit-employees [https://perma.cc/GTS2-MK9Z].
A literature review reveals a robust regulatory debate, and academic coverage thereof, through the 1970s but very limited academic coverage of CITs in the years since then. For academic and regulatory analysis of CITs prior to 1980, see Wade, supra note 7, at 363-67; Note, The Legality of Bank-Sponsored Investment Services, 84 Yale L.J. 1477, 1492-93 (1975); Louis J. Marin, Common Trust Funds—Development and Federal Regulation, 83 Banking L.J. 565, 567, 579, 592 (1966); John Micheal Webb, Comment, Of Banks and Mutual Funds: The Collective Investment Trust, 20 Sw. L.J. 334, 337 (1966); Note, Commingled Trust Funds and Variable Annuities: Uniform Federal Regulation of Investment Funds Operated by Banks and Insurance Companies, 82 Harv. L. Rev. 435, 436 (1968); James J. Saxon & Dean E. Miller, Common Trust Funds, 53 Geo. L.J. 994, 994-1003 (1965); John W. Church, Jr. & Richard B. Seidel, The Entrance of Banks into the Field of Mutual Funds, 13 B.C. Indus. & Com. L. Rev. 1175, 1177 (1972); John W. Erickson, Comment, The Expanding Jurisdiction of the Securities and Exchange Commission: Variable Annuities and Bank Collective Investment Funds, 62 Mich. L. Rev. 1398, 1406-09 (1964); and Martin E. Lybecker, Bank-Sponsored Investment Management Services: Consideration of the Regulatory Problems, and Suggested Legislative and Statutory Interpretive Responses, 1977 Duke L.J. 983, 988-89. Since 1980, there have been only a few academic pieces that address or even mention CITs. See, e.g., Harvey L. Pitt & Julie L. Williams, The Convergence of Commercial and Investment Banking: New Directions in the Financial Services Industry, 5 J. Compar. Bus. & Cap. Mkt. L. 137, 138 (1983) (describing the early efforts of banking institutions to “enter the securities field”); Howell E. Jackson, A System of Fiduciary Protections for Mutual Funds, in Fiduciary Obligations in Business 132, 146-48 (Arthur B. Laby & Jacob Hale Russell eds., 2021) (identifying CITs as an example of “contexts in which mutual fund shares are distributed to retail investors through pooled vehicles not directly subject to mutual fund regulation”); David H. Webber, Reforming Pensions While Retaining Shareholder Voice, 99 B.U. L. Rev. 1001, 1017-21 (2019) (considering CITs’ potential to preserve “shareholder voice”); Edwin J. Elton, Martin J. Gruber & Christopher R. Blake, The Performance of Separate Accounts and Collective Investment Trusts, 18 Rev. Fin. 1717, 1717, 1734-47 (2014) (assessing the performance and account characteristics of CITs).
See, e.g., Justin Worland, Larry Fink Takes on ESG Backlash, Time (June 29, 2023, 1:45 PM EDT), https://time.com/6291317/larry-fink-esg-climate-action [https://perma.cc/XS2N-WY2G] (“As the backlash to ESG has grown over the last year, business leaders have changed the way they talk about their climate work to tiptoe around the political faultlines.”); Tony Owusu, BlackRock, Vanguard ESG Policies Get Political Pushback, TheStreet (Dec. 12, 2022, 2:24 PM EST), https://www.thestreet.com/investors/blackrock-vanguard-esg-policies-get-political-pushback [https://perma.cc/H7U2-T9RQ] (describing instances of state-government pushback against the environmental, social, and governance policies of some large asset managers).
See, e.g., Press Release, Inv. Co. Inst., ICI Welcomes Senate Bill Introduction to Help Retirement Savers (Aug. 1, 2024), https://www.ici.org/news-release/24-bill-help-retirement-savers [https://perma.cc/8QDV-CNRA] (expressing support for the Retirement Fairness for Charities and Educational Institutions Act, which would allow 403(b) plans to invest in CITs, and expressing hope that “the Senate will join the House and swiftly pass this legislation”). The Investment Company Institute “is the leading association representing the asset management industry in service of individual investors. ICI’s members include mutual funds, exchange-traded funds (ETFs), closed-end funds, and unit investment trusts (UITs) in the United States, and UCITS and similar funds offered to investors in other jurisdictions.” About the Investment Company Institute, Inv. Co. Inst., https://www.ici.org/about-ici [https://perma.cc/Y36G-FP6L]. ICI also “represents its members in their capacity as investment advisers to collective investment trusts (CITs).” Id. In describing its own history, ICI explains that “[m]ost recently, ICI has begun working with its members who also maintain collective investment trusts and separately managed accounts.” History of the Investment Company Institute, Inv. Co. Inst., https://www.ici.org/ici-history [https://perma.cc/385G-J5EG].
See Gensler, supra note 3 (making the case for additional “liquidity, pricing, and plumbing” rules for mutual funds and lamenting that rules for CITs and short-term investment funds “lack limits on illiquid investments and minimum levels of liquid assets” and that “[t]here is no limit on leverage, requirement for regular reporting on holdings to investors, or requirement for an independent board”).