Are CITs Right for Your 401(k)? Real-World Answers
Broadcast Retirement Network's Jeffrey Snyder discusses what to consider when using CITs in your 401k plan with Innovest Portfolio Solution's Rick Rodgers, AIF.
Jeffrey Snyder, Broadcast Retirement Network
Joining me now is Rick Rodgers. He's a principal and consultant with Innovest Portfolio Solutions. Rick, it's always great to see you.
Thanks for joining us this morning.
Rick Rodgers, AIF, Innovest Portfolio Solutions
Great to see you, Jeff. Good to be with you. Thanks for the invite.
Jeffrey Snyder, Broadcast Retirement Network
Absolutely, and as a fellow musician, I'm always pleased when we have guests on that are musicians. I love the guitars properly placed in your background, and those are real guitars, are they not?
Rick Rodgers, AIF, Innovest Portfolio Solutions
That's one of the most common questions I get when I'm on a Zoom meeting, and indeed they are. And then the second one is, yes, I do play them.
Jeffrey Snyder, Broadcast Retirement Network
Okay, well, yeah, and I've seen you actually play. So with that established, Rick, we're gonna talk about collective investment trust. These are a big topic in the retirement and financial services industry, getting a lot of traction.
You and Innovest are a very well-known, I call it a consulting firm, but you're an investment consulting firm. You do a lot of due diligence on these type of products, projects, products. Let me ask you, what's your role in reviewing and evaluating retirement plan products for clients?
Rick Rodgers, AIF, Innovest Portfolio Solutions
Yeah, that's a good place to start. I'm a member of Innovest's investment committee, and our committee reviews, debates, discusses every strategy that's presented to us prior to approving it for recommendation to a client, or in the example of a 338 arrangement prior to putting it into a client's portfolio. And I think the easiest way to answer that question is to say, my role on the committee is to ensure that it makes sense to use the structure.
I mean, most of our clients are looking to go into a CIT because there is a lower operating cost, and so they're looking to get higher returns. So with that being the objective, we're seeking to ensure that, in fact, it does make sense.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, and you serve, I'm gonna paraphrase, but you serve as a fiduciary on behalf of your clients. So either a 321 or a 338, those are the common fiduciary responsibilities under ERISA. So there's been a lot of talk in the industry, Rick, and one of the reasons why we're doing this show is there's been a lot of talk about collecting investment trusts.
Anytime you pick up the trades, trade publications, which are great, you're gonna see a lot of content around this. But let me ask you a basic question. Among the InnoVest clients, are you seeing a lot of them express an interest in CITs for their DC plans?
Rick Rodgers, AIF, Innovest Portfolio Solutions
We are. I would say that that's largely prompted by us. We conduct an annual share class review to ensure that the plan is utilizing the lowest cost share class that's available to them.
And we also add CITs that have met our due diligence criteria to that share class review. That then prompts a presentation from us to explain the difference to the committee between CITs and mutual fund investments. And then I would say that a fiduciary breach litigation has probably contributed to the interest as well.
There've been a number of suits that have alleged that the plan sponsors should have considered utilizing lower cost CITs. And so overall, we're just seeing a significant increase in CIT utilization compared to mutual funds.
Jeffrey Snyder, Broadcast Retirement Network
And Rick, I mean, maybe I should have started with this question or instead of ending this portion of our conversation, but InnoVest works with all different types of retirement plan clients, from pensions to 401k to 403b to governmental deferred comp. Are there specific areas of the market that maybe are more interested than others when it comes to CITs?
Rick Rodgers, AIF, Innovest Portfolio Solutions
There are. Obviously some debate over whether or not CITs will be made available to 403b plans. At this time, they're not.
So we're sort of awaiting that. So it's qualified plans, governmental plans, and I would say larger plans, generally 200, 250 million and up. And that's generally driven by the minimums to be eligible to get into a CIT.
They tend to be about 25, some are 100, some are 500 million to access the lowest cost share classes that are available. Some are over a billion to get to the lowest cost share classes available. So if you think about just replacing a single fund as opposed to say a target date suite, you really have to have a plan that's of scale in order to get to those minimums.
Jeffrey Snyder, Broadcast Retirement Network
And Rick, for our audience this morning, what are some of the differences when you, most of the audience is really familiar with a mutual fund structure. You see it in IRAs, you see it in 401k, 403b, you see it in general retail accounts. How do the mutual fund structures differ or how do CITs differ from that traditional mutual fund structure?
What makes them so unique and different?
Rick Rodgers, AIF, Innovest Portfolio Solutions
Well, let me start with how they're similar. They're both pooled investments. So many investors pool their money into a single fund.
And in the case of a mutual fund, they're regulated and also filed with the SEC. They're subject to the Investment Company Act of 1933, the Investment Advisors Act of 1940. Whereas CITs are collective investment trusts.
So they're subject to trust law. They're governed by the OCC and also by state bank regulators. So that's the primary difference.
Mutual funds and CITs are traded a little differently. There's a greater transparency with mutual funds. It, however, is growing in the CIT space.
It's, you know, there's a fair amount of transparency for financial advisors, but to individual participants, it's not nearly, they just don't have the access that we do. They're unlikely to pay a very expensive subscription for independent analytical data. Whereas, you know, it's a necessity of a firm like ours.
So yeah, I'd say that the regulatory framework is the major difference. And ultimately, because it's not as stringent on the CIT side, it leads to lower operating costs, which then leads to a lower expense ratio and ideally improved investment returns. And that's the whole purpose, right?
To get it.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, I mean, that's what the source of so much of the litigation has been, is to seek to bring down fees or at least point out higher fees. And at the end of the day, as your assets grow economically, you just think that there's opportunities to bring down costs. I mean, that's just the basic law of economics.
Rick, you talked about maybe some of the differences, but how does that frame InnoVest's due diligence and evaluation process? Cause I have to think there's gotta be material differences. You talked about the subscription service that you need in order to get under the hood, so to speak, but how does it really differ from the mutual fund traditional due diligence?
Rick Rodgers, AIF, Innovest Portfolio Solutions
Well, we start with some minimum criteria with our due diligence team. First, we want to only look at strategies that are attempting to mirror or replicate a mutual fund. There are other types of strategies of CITs available, but those I would say are the leading strategies.
Those are the ones that we're comfortable recommending to our clients. Second, we wanna see at least a three-year track record. So, and I think other firms have similar minimum qualifications.
So some of the growth is a result of many more products becoming available and some time passing and us finally getting three, five, seven, 10-year track records on some of these. We don't want our clients to be seed investors. So one of the minimum criteria is 500 million minimum AUM across all share classes.
And the InnoVest clients don't comprise more than 10% of the CIT total assets. And then from there, we begin to look at tracking error because CITs are not offered to retail investors or IRA investors. They're only offered to institutions.
The cashflow streams are very different. And despite attempting to replicate a mutual fund, those cash streams can have an impact on performance. So despite having a CIT that say five basis points cheaper than the mutual fund, the actual performance sometimes isn't better than the mutual fund.
And that's generally a result of what I just described. So that's part of what we're doing on the investment committee in analyzing these is to ensure again that the five basis point lower cost resulted in better performance.
Jeffrey Snyder, Broadcast Retirement Network
So knowing all that, Rick, when you're working with a client and for those who are unfamiliar, if you have a fund that you wanna replace, you typically have alternatives that you put and you look at them and you compare them and you look at all these quantitative factors and qualitative factors. But Rick, if you have the mutual fund in the CIT and you kind of talked a little bit about this, but let me drill down a little bit more. How do you make that selection?
So what justifies moving to the CIT versus remaining with the mutual fund, everything else being equal?
Rick Rodgers, AIF, Innovest Portfolio Solutions
One, that the client is comfortable with the different structure. And I should add here that investing in a CIT is slightly different from a mutual fund and that you have to sign a participation agreement with the trust. We've had instances where the legal counsel of our client wanted to make some changes to that participation agreement.
The trust company declined to make those changes and so that sort of killed it. So we have to start there. Is the client comfortable with investing?
And then from a due diligence perspective, it is what I mentioned earlier. Is the juice worth the squeeze, so to speak? Is five basis points or 10 basis points, whatever the delta in the operating expense ratio is, is it producing greater returns?
Jeffrey Snyder, Broadcast Retirement Network
Rick, lastly, and I apologize, we'll have to bring you back to talk more about this topic and candidly other topics, but what does the transition look like? So when you've decided with the client to move from mutual fund A to collective investment trust B, everything's met the screens, all the due diligence, et cetera, what does that transition of money and purchasing the CIT actually look like?
Rick Rodgers, AIF, Innovest Portfolio Solutions
It is what I was just describing is that they enter into a participation agreement. That typically is reviewed by the client's legal counsel. In some cases, they'll engage outside counsel to review the document.
And if they're comfortable with all the terms or the trust company is comfortable with some minor edits to the participation agreement, once that's put in place, the transition is very similar to a mutual fund. Assets are moved to the new investment vehicle. It already resides on the record keepers platform so it's relatively seamless.
There's really just that one extra step at the onset.
Jeffrey Snyder, Broadcast Retirement Network
So it's the participation agreement, of course, there's the notifications for the participant, right, that have to be, do they have to be notified if you're moving from a similarly detailed collective investment trust?
Rick Rodgers, AIF, Innovest Portfolio Solutions
They have to be notified if there's any investment change, including if it's going from a mutual fund to a CIT. Even if they're changing share classes, we recommend that there's a participant notification.
Jeffrey Snyder, Broadcast Retirement Network
I like that. I think it's good on behalf of the plan. It's good on behalf of the fiduciaries, checks all the boxes.
Rick, we're gonna have to leave it there. It's always great to see you, my friend. Maybe next time when you come on, we can ask you to play a little ditty for us.
Good to see you. Thanks for joining us. And we look forward to having you back very soon.
Rick Rodgers, AIF, Innovest Portfolio Solutions
You're welcome. Thanks so much, Jeff.
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This story was originally published April 21, 2026 at 4:30 AM.