Overtaking Mutual Funds: The Hidden Rise and Risk of Collective Investment Trusts

39 Pages Posted: 19 Sep 2023 Last revised: 15 Mar 2024

Date Written: September 17, 2023


The retirement security of millions of American workers is increasingly tied to an investment vehicle that most have never even heard of, and whose dramatic rise has received almost no regulatory scrutiny in recent decades. With nearly $7 trillion dollars in assets, “collective investment trusts” (CITs) are rapidly replacing mutual funds on the investment menus of employer-sponsored retirement plans. Individuals who once had staked their retirement nest eggs on the returns from mutual funds have had more and more of their savings transferred into bank-sponsored CITs, which now hold nearly 30% of all assets in defined contribution plans, up from just 13% a decade ago. Legislation to further expand access to CITs is currently pending in Congress. Yet despite such dramatic growth and economic significance, CITs—which look and act a lot like mutual funds but are sponsored by banks and subject to oversight by the Comptroller of the Currency—have been largely overlooked, with almost no critical analysis of CITs as investment funds, as institutional investors, and as increasingly important participants in an interconnected financial system.

This Essay tells the story of a century-old bank product seizing on regulatory gaps and exploding in popularity among retirement plans seeking cheaper investment options for individual participants. The dramatic growth of CITs raises new and critical questions about the tradeoffs associated with CITs: in particular, the benefits of lower fees versus the individual and systemic risks that may stem from lower transparency, fragmented regulatory oversight, fewer restrictions on permitted investments, and centralized control in the hands of bank trustees. In identifying these tradeoffs, this Essay builds the foundation for future scholarship to improve the understanding of the behemoth investment vehicle whose growth and impact have gone largely unexamined over the last four decades.

Keywords: mutual fund, collective investment trust, 401(k), retirement, institutional investor, proxy voting, DOL, SEC, OCC, ERISA, Investment Company Act, fee litigation

JEL Classification: K22, K23, K34, J26, K32

Suggested Citation

Shnitser, Natalya, Overtaking Mutual Funds: The Hidden Rise and Risk of Collective Investment Trusts (September 17, 2023). Boston College Law School Legal Studies Research Paper No. 612, Yale Law Journal, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4573199 or http://dx.doi.org/10.2139/ssrn.4573199

Natalya Shnitser (Contact Author)

Boston College - Law School ( email )

885 Centre Street
Newton, MA 02459-1163
United States

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