Investing August 22, 2019

Education and Transparency Two Issues for CIT Use in DC Plans

Anya Krymkowski, with Cerulli, says plan sponsors can negotiate with CIT providers to receive more information on the trusts, thereby addressing the transparency issue.

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According to a report by Cerulli Associates and the Coalition of Collective Investment Trusts, collective investment trust (CIT) assets stood at $3 trillion as of year-end 2018. For the five-year period ended by the end of last year, they grew at a compound annual growth rate of 7.25%. Had the market not fallen at the end of last year, that growth rate would have been higher.

CIT’s lower costs compared to mutual funds is the primary driver of their growth, the two organizations say. In recent years, defined contribution (DC) plans have accounted for the majority of flows to CIT products, forcing providers to increasingly question strategies for tapping the channel.

“More than 40% of CIT providers identify advisers’ lack of CIT knowledge as a top challenge to adoption in DC plans,” says James Tamposi, senior analyst at Cerulli. “This highlights that one of the biggest initiatives has been to increase education and awareness of the vehicle among plan sponsors, financial advisers and other industry participants.”

Another challenge that CITs face is their lack of transparency. “The lack of consistent, public reporting factors [has led to] DC plan sponsors’ reluctance to adopt the vehicle,” says Anna Fang, research analyst at Cerulli. “Almost half of providers surveyed noted that CITs’ lack of transparency relative to mutual funds threatens the vehicle’s adoption.”

However, that being said, Anya Krymkowski, associate director, retirement, Cerulli, says that knowledge about CITs among advisers who specialize in retirement plans, particularly those in the mid to large market, is quite high, and that CITs have been growing at a faster rate than mutual funds within retirement plans. Additionally, she says, advisers and plan sponsors can negotiate with CIT providers to receive more information on the trusts, thereby addressing the transparency issue. “CIT providers are issuing more information and doing so more frequently,” she notes. However, CIT providers are likely to be reticent to disclose how they negotiate fees, and the information reported for CITs is still less standardized than for mutual funds.

Compliance August 22, 2019

Rule on Electronic Disclosures Moving Along

The OMB has received for review a proposed rule from the DOL aimed at reducing costs and improving participant understanding of retirement plan disclosures.

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On August 16, the Office of Management and Budget (OMB) received from the Department of Labor (DOL) a proposed rule relating to the providing of electronic disclosures to retirement plan participants.

The title of the rule is “Improving Effectiveness of and Reducing the Cost of Furnishing Required Notices and Disclosures.” According to the DOL, it is aimed at reducing the costs and burdens imposed on employers and other plan fiduciaries responsible for the production and distribution of retirement plan disclosures required under Title I of the Employee Retirement Income Security Act (ERISA), as well as making these disclosures more understandable and useful for participants and beneficiaries. It is being proposed in response to Executive Order 13847, Strengthening Retirement Security in America.

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A study last year from the American Retirement Association (ARA) commissioned with the Investment Company Institute (ICI) found that eliminating the cost of delivering paper notices to 80 million participants annually can translate into additional retirement savings of about 2.4% over a lifetime of work. The study also concluded that e-delivery improves access for the visually impaired and others with disabilities and improves access and the quality of information for those who speak English as a second language.

In June, eight organizations associated with defined contribution (DC) plans submitted a letter to the DOL’s Employee Benefits Security Administration asking it to propose regulations that would permit plan sponsors to make electronic delivery the default method of delivery for retirement plan disclosures and notices. If employees did not want electronic delivery, they would have the ability to request paper copies.

The OMB has up to 60 days to review and act on the submission—but could act more quickly—after which the DOL would propose the rule in the Federal Register and provide a 60-day comment period for stakeholders. In its spring regulatory agenda, the agency indicated it planned to issue a Notice of Proposed Rulemaking (NPRM) on electronic delivery of disclosures in December of this year.

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