CITs answer to bank examiners. Sponsors answer for the rest.

Collective investment trusts are bank products, which is where every oversight question about them starts. The vehicle that has overtaken mutual funds as the retirement industry's preferred plan investment offering, as PLANADVISER frames it, does not answer to the Securities and Exchange Commission because it is not a security; state and federal banking regulators do, depending on the charter of the issuing bank, with the Office of the Comptroller of the Currency or state bank examiners and the Internal Revenue Service alongside. Where a mutual fund answers to the Investment Company Act of 1940, a CIT answers to ERISA, and because a CIT is privately held it cannot be bought in a retail account the way a fund can.

What reaches a plan committee is less which agency signs off than how many parties touch the vehicle. Dan Pawlisch, a 403(b) client practice leader at Aon, tells PLANADVISER there is no inherent benefit or drawback to having more layers of fiduciary oversight through a CIT; the greater question, in his account, is trustee accountability and the governance process a sponsor already has. Luigi Andriani, head of products for Equitable's group retirement business, lists the fiduciary layers a CIT can carry: a CIT provider, an investment provider, an investment selection provider, a glide path provider. Annelle Kemp, a director in Alpha Financial Markets Consulting's North America asset and wealth management practice, says whether that stack is good or bad depends more on the trustee selected to oversee the CIT, since trustees bring their own track records.

In practice the two vehicles get reviewed on the same clock. Because many plans offer both, Pawlisch says sponsors commonly review each around the same time, typically once per quarter. A mutual fund, publicly traded, holds quarterly meetings; a CIT is audited at least annually and required to issue audited financial statements.

The asymmetry that matters is that mutual fund oversight is statutory, uniform and public, while CIT oversight is contractual, living in the documents the sponsor signs, the trustee it selects and the monitoring calendar it keeps. Pawlisch's governance answer carries the weight because the extra parties on a CIT create delegation without creating a public accounting. In a market where target-date shelf space is the currency of the DC market, recordkeepers rather than asset managers decide which glidepath wins; CITs now hold 55% of the $5.3 trillion target-date market. The vehicle with no SEC registration took the default slot, and the price of that is a governance job the fee quote does not do. Watch whether committee minutes begin naming the trustee and each provider's duty, or whether they keep recording the basis points.