(b)lines Ask the Experts – Can CITs Be Used in 403(b)s?

Michael A. Webb, vice president, Cammack Retirement Group, answers:  

Another excellent questions that is once again illustrative of the differences of 403(b) plans from other plan types with respect to permissible investments.

For those who are not aware, a collective investment trust (CIT), also known as a commingled fund, is a type of investment that is similar to a mutual fund, but is only available to retirement plans. Sponsored by a bank or trust company, CITs are the collective assets of various retirement plans that are combined to increase their collective purchasing power, which can result in investment pricing for plan sponsors that may be lower than they might otherwise obtain on their own.

As we previously discussed in our Ask the Experts column about ETFs, unless your 403(b) plan is a 403(b)(9) Retirement Income Account offered by a church,  investments are restricted to two types: 1) 403(b) annuity contracts, and 2) 403(b)(7) custodial accounts (more commonly known as mutual funds). Though, as indicated above, CITs behave like a mutual fund (they are valued daily and indeed may hold mutual funds as underlying assets), the majority of CITs are NOT registered as mutual funds. And, as a practical matter, the few CITs that are registered as mutual funds do not appear to be offered to 403(b) plans, and the Experts have never encountered a CIT outside of a 403(b)(9) Retirement Income Account offered by a church plan, which is not subject to the investment restrictions of 403(b).

Thank you for your question!

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.