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CITs in the 403(b)? 🎶

June 23, 2020

They come from the cities and they come from the smaller towns
Beat up cars with guitars and drummers
Going crack boom bam
R.O.C.K. in the U.S.A.

Sorry, got a little carried away there. When I hear CITs in the 403(b) I hear R.O.C.K. in the U.S.A. by John Mellencamp. Bipartisan legislation was recently introduced to make this investment vehicle available in 403(b) plans. What are CITs and why might they make a good fit for the 403(b)? 

What is a CIT?

Known as collective investment trust, CITs are pooled investments organized as a trust. They have been around since 1927 and are already available in 401(k) and 457(b) plans, and the government Thrift Savings Plan. 

Costs Costs Costs

A Morningstar policy research paper called CITs: A Welcome Addition to 403(b) Plans touts CITs lower investment costs as a key reason 403(b) plans should adopt this investment vehicle. Morningstar reports that “when comparing the net expense ratio of CIT tiers and mutual fund share classes of the same strategy, CITs are cheaper 91% of the time, and even when considering only the least expensive CIT tier and mutual fund share class, CITs are cheaper 82% of the time.” One reason for the lower fee structure is that CITs are not regulated by the Securities and Exchange Commission. Oversight is provided by the managers employed by the trustee. Regulation is provided by the OCC which I feared stood for Orange County Coroner. I was relieved to learn that OCC stood for Office of the Comptroller of the Currency, a federal agency within the Treasury Department. "Employer’s should consider adding CIT’s to add more flexible stable value options to their programs as well as the potential for lower cost investment options compared to mutual funds,” said fiduciary advisor and co-host of the Teach and Retire Rich podcast Scott Dauenhauer, CFP. 

Tune Change?

In our latest podcast, Scott and I explored CITs with the super knowledgable Ben Taylor, vice president of the consulting firm Callan. I began the conversation skeptical of CITs. I feared more complexity would just further confuse the product choice discussion. Ben and Scott walked me through why CITs make sense for 403(b) participants. What tune am I singing now?

They come from the cities and they come from the smaller towns
Beat up cars with guitars and drummers
Going crack boom bam
C.I.T.s in the 403(b) 
C.I.T.s in the 403(b) 
C.I.T.s in the 403(b) 


Stay well.

Related Podcast:

CITs in the 403(b)? CITs are being touted as a low cost investing option for the 403(b). Listen Now »