Ask the Experts February 4, 2025

Can 457(b) Plans Offer CITs?

Experts from Groom Law Group and CAPTRUST answer questions concerning retirement plan administration and regulations.

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Q: I read an Ask the Experts column which indicated that there are generally no restrictions on 457(b) plan investments. However, my 457(b) plan recordkeeper advised me that we cannot invest 457(b) plan assets in collective investment trusts. Who is correct?

Kimberly Boberg, Kelly Geloneck, Emily Gerard and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

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A: Well, as the column states, there are no legal restrictions, outside of possible state-level restrictions, that would prohibit a governmental 457(b) plan from investing in CITs. However, as provided in Revenue Ruling 2011-1 and subsequent guidance, a 457(b) plan sponsored by a tax-exempt entity is not permitted to invest in a CIT.

In addition, a CIT provider can always decide that it does not want to offer its product to 457(b) plans, not as a matter of law, but simply as a matter of policy (e.g., it would simply not be profitable to do so). Similarly, a recordkeeper may limit the options on its recordkeeping platform to prohibit certain CITs or prohibit CITs entirely. Thus, even if you are a governmental entity, CIT availability in your 457(b) plan may indeed depend on the investments that are available to you as a practical matter on your recordkeeping platform. 

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.

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Amy.Resnick@issmarketintelligence.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future column.

Investing February 3, 2025

Vanguard Announces Fee Reductions Across 87 Funds

According to the firm, the reduction, which applies across 168 share classes, is its largest fee cut to date.

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The Vanguard Group Inc. announced Monday that it has reduced fees on 168 share classes across 87 investment funds in what the firm called its largest fee cut to date. Vanguard offered 428 funds worldwide—212 in the U.S.—as of the end of 2023, according to its website.

The firm projects that the fee reductions will save investors of all kinds more than $350 million this year alone. Of the funds with reduced fees, 48 include institutional or institutional plus share classes. The fee reductions for these share classes ranged from one to five basis points. 

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Target-date funds for retirement plan participants were not included in the fee reductions. 

“Lower fees mean fund investors can keep more of their returns and a competitive edge for our funds,” said Greg Davis, Vanguard’s president and chief investment officer, in a press release. “When you think about our actively managed funds, our managers don’t have to take unnecessary risk to earn back our fees. Our financial model and structure [create] a virtuous cycle of economies of scale, where we can continue to reduce fees and invest in things like technology and talent.” 

The prospectuses of all affected funds were updated Monday in filings with the Securities and Exchange Commission, according to the announcement. 

Expense ratios may cover investment advisory fees, marketing and distribution expenses, brokerage fees and custodial, transfer agency, legal and accounting fees, according to Vanguard. The full list of funds with reduced fees can be found here. 

The company has about $10.4 trillion in assets under management, as of November 30, 2024. At the end of 2023, it had approximately $8.6 trillion in assets under management worldwide. 

The move to lower fees come less than one year after Vanguard announced that Salim Ramji, the former head of BlackRock Inc. iShares, would take over as the firm’s CEO, succeeding Tim Buckley, who retired at the end of 2024.

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