DCIO Firms Increase CIT Distribution to Sponsors of Smaller Plans

Demand for collective investment trusts continues to increase among small and midsize plans, according to new research on defined contribution investment only distribution from Sway Research.

Specifically, demand is increasing in the less-than-$50 million retirement plan segment, the data showed. DCIO firms estimate that 22% of current CIT sales are generated from plans with less than $50 million in assets, with another 23% coming from plans holding between $50 million and $100 million in assets, according to the “State of DCIO Distribution: 2024—Key Benchmarks, Developing Trends, Winners and Outlook.”

Sponsors of these smaller plans are interested in the CITs because they want to take advantage of lower fees and cost savings relative to mutual funds, which are subject to the Investment Advisers Act of 1940, says Chris Brown, co-founder of and principal in Sway Research.

“CITs bring down the cost of the operational side: There are fees involved in a ‘40 Act mutual fund that you don’t have in a CIT, so [plan sponsors] are able to strip out some of the operational fees,” he says.

Additionally, CITs carry lower fees because they are regulated by the Department of the Treasury’s Office of the Comptroller of the Currency—unlike mutual funds, which are regulated by the Securities and Exchange Commission, which requires regular registration statements and prospectuses.

Sway’s data showed the share of DCIO gross sales in CITs by plan size grew between 2019 and 2023.

The 2023 data showed:   

• Plans with assets of at least $500 million accounted for 18% of gross sales in 2023, versus 56% in 2019;
• Plans with assets between $100 million and $500 million comprised 36% of sales in 2023, compared with 30% in 2019;   
• Plans with assets between $50 million and $100 million comprised 23% of transactions in 2023, compared with 10% in 2019; and
• Plans with $50 million in assets or less accounted for 22% of sales in 2023, up from 4% of transactions in 2019.

Defined contribution investment only assets under management are projected to be $5.9 trillion by the end of 2023, up from $5.38 trillion at the end of last year but down from $6.38 trillion at the end of 2021, Sway data showed.

According to data from the Investment Company Institute and Brightscope, CITs are increasing in asset share across 401(k)plan segments, with Sway projecting 2023 figures.

The percent of 401(k) assets in CITs by plan size includes:

Source: Brightscope, ICI and Sway Research.

“The State of DCIO Distribution” is Sway Research’s annual benchmarking study on defined contribution investment only. The survey was in the field between July 25 and September 12.