CIT vs. Mutual Fund: Which Is Better for Your 401(k)?

A CIT and a mutual fund can hold the same investments, run by the same team, and look identical on a participant’s statement. What separates them is who runs the fund, who’s allowed to own it, and what a plan signs to get in.

Those differences change what participants pay and who answers if something goes wrong. Investment costs are usually the largest piece of what a 401(k) costs, and ERISA requires plan expenses to be reasonable, so which one a plan holds is worth comparing and writing down even when nothing ends up changing.

The checklist below puts that comparison on one page, with room to record what the committee decided.

What Is a Collective Investment Trust?

A collective investment trust is a pooled fund run by a bank or trust company. It holds money from retirement, pension, profit sharing, and stock bonus trusts that are exempt from federal income tax, and governmental plans can participate too. The bank is the trustee of the fund and legally owns everything in it. The bank can hand day-to-day investment management to an investment firm, but banking rules require it to keep exclusive management of the fund and hold onto its own responsibility as fiduciary.

A CIT isn’t registered with the SEC. When a bank or trust company runs the fund, its banking regulator oversees it: the Office of the Comptroller of the Currency for a national bank, the state banking regulator for a state-chartered trust company. The Department of Labor and the IRS have a say too, because retirement plan money sits inside the fund.

Being trustee of the fund is a different job from being trustee of the plan. ERISA requires a plan to have its own trustee holding the plan’s assets, and the bank that runs a fund the plan invests in does not become that trustee. It only takes that role if the plan hires it to, in a separate agreement.

What Is the Difference Between a CIT and a Mutual Fund?

A mutual fund is run by a fund company and anyone can buy it. A CIT is run by a bank or trust company and only retirement plans can buy it. Almost everything else follows from that.

Two lines in that chart do most of the work. Price is one: a CIT skips the costs of being sold to the public, and it can charge a lower fee to a plan that invests more. Accountability is the other: the bank running a CIT answers to the plan under ERISA for the money in the fund, and a mutual fund company does not.

Are CITs Cheaper Than Mutual Funds?

Usually, yes. And it isn’t a discount somebody decided to hand out. It’s a list of costs the fund never has to pay at all. With a CIT, the more a plan invests, the lower the management fee can be. Mutual funds generally can’t do that.

Two things can change that answer.

The first is which two funds get compared. The comparison that counts is the CIT version a plan is large enough to qualify for, priced against the mutual fund version the plan can buy today. Industry averages for CITs cover plans of every size at every provider, so they say very little about what one plan would actually pay.

The second is that the two expense ratios may not pay for the same services. A mutual fund’s expense ratio often includes a payment that goes to the recordkeeper. A CIT’s usually doesn’t, so the plan gets billed for recordkeeping separately. That can make the CIT look cheaper when part of its cost has only moved to a different invoice. Adding the recordkeeping bill back in gives the real comparison.

None of that means much without knowing what the plan pays now, which is why a defensible schedule for benchmarking fees comes before the question of which fund to hold.

Are CITs Safe?

Yes. A CIT holding the same stocks and bonds as a mutual fund carries the same investment risk, because changing the container doesn’t change what’s inside it.

There’s real oversight, it just runs through banking law instead of securities law. A bank runs the fund under its regulator’s supervision, and the fund gets audited at least once every twelve months. The bank prepares a financial report from that audit listing every holding at cost and market value, and any plan in the fund can get a copy without charge.

A CIT also gives a plan something a mutual fund does not. When a plan buys mutual fund shares, ERISA counts the shares as plan assets but not the stocks and bonds the fund owns, so the people managing that money are not ERISA fiduciaries to the plan. With a CIT, ERISA counts everything inside the fund as plan assets, which makes the bank running it an ERISA fiduciary for all of it. A fiduciary has to act with care, loyalty, and prudence, and one that breaches those duties has to make the plan whole for the losses the breach caused.

That protection covers the fund, not the decision to use it. The committee still answers for picking the fund and for watching it afterward.

What Are the Advantages and Disadvantages of CITs?

Five on each side. This isn’t every item, and how much each one matters depends on the plan.

The advantages.

• Lower cost. A CIT doesn’t pay for SEC registration, a prospectus, shareholder mailings, or advertising, so none of those costs reach participants.
• The price improves as the plan grows. Putting more money in can lower what the manager gets paid.
• Somebody is on the hook for the fund. The bank is a fiduciary under ERISA for everything in it.
• ERISA’s self-dealing rules reach inside the fund. Because the fund holds plan assets, the restrictions on transactions between a plan and an interested party apply to what happens in the fund, not just to what the committee does.
• Access to options that aren’t sold as mutual funds. Stable value is the main one. It’s built out of contracts with banks and insurance companies, and it reaches a plan as a collective trust, a separate account, or an insurance contract. In a lineup that can’t hold any of those, a money market fund is the usual stand-in for that part of the menu.

The disadvantages.

• Getting in depends on plan size and the recordkeeping platform. Banking rules don’t set a minimum. The fund’s own documents do, and a fund can price in tiers based on how much a plan commits. The plan’s recordkeeper also has to be able to hold and trade the fund.
• Most 403(b) plans are shut out. Church retirement income accounts under Code section 403(b)(9) can use collective trusts. Other 403(b) plans can’t, and neither can IRAs. Legislation to open CITs to 403(b) plans passed the House in December 2025 and is pending in the Senate, so this one could change.
• Trading terms come from the fund, not from a rule. CITs built for 401(k) lineups price every business day, so participants trade them the same way they trade a mutual fund. But banking rules only require quarterly pricing, and a fund invested mainly in real estate or other hard-to-sell assets can require up to a year’s notice to get out. The fund’s documents say which kind it is.
• The CIT version may have less history to look at. A CIT launched after the mutual fund has fewer years of performance behind it, and because the two charge different fees, their returns won’t line up even when the same manager runs the same strategy. A committee evaluating the CIT has a shorter record to work from.
• You can’t look a CIT up online the way you can a mutual fund. There’s no prospectus, and the participation agreement and the fund’s written plan aren’t published anywhere. The plan requests those from the provider, along with the fund’s annual financial report, which it can get free of charge. Participants aren’t left short. They still get the fund’s fact sheet and the required chart showing returns, a benchmark, and the annual cost.

When Should a Plan Use a CIT Instead of a Mutual Fund?

When it saves participants money and employees can still move that money when they want. 

Most 401(k) plans value accounts every business day, and the CITs built for those plans price daily to match. Banking rules only require quarterly pricing, though, so it’s worth confirming that the particular fund prices daily and doesn’t require notice before a withdrawal. Six questions settle it. The recordkeeper and the fund provider supply most of the answers; the last one is the committee’s own record.

1. Can the plan use one? A 401(k) or other qualified plan, a governmental plan, or a Taft-Hartley plan can. Most 403(b) plans can’t.
2. Can the recordkeeper hold it? The bank or trust company runs the fund, but the recordkeeper’s platform has to be able to trade and track it. A fund the platform can’t hold isn’t an option at any price. Which jobs a recordkeeper has agreed to in writing is the place to start.
3. How much does the plan have to invest to get the lower fee? A CIT often sets its fee in steps based on how much money a plan has in the fund. The provider can put both numbers in writing: what the plan pays at its current size, and how much more it would take to reach the next step down.
4. What would the plan pay in total? A mutual fund’s fee often covers part of the recordkeeping bill, and a CIT’s usually doesn’t, so the recordkeeper invoices the plan for that work instead. The real comparison is the fund fee plus the recordkeeping bill, for each option.
5. What’s in the participation agreement? How often the fund is priced, how much notice it takes to get out, and what the trustee can change without asking.
6. Did the committee write down what it found? The minutes are the only proof the comparison happened. ERISA judges a committee on how it reached a decision, not on how the fund performed afterward, so the notes should name the two funds compared, what each one costs, and the reason for keeping or switching.

One thing to check first: when a committee has an investment policy statement, a change to the lineup has to fit what that document already commits it to, since a committee that sets a standard and then misses it will be asked why.

Before Your Next Committee Meeting

Start with the recordkeeper. Its platform list shows which collective trusts it can hold and trade, which settles both questions at once: whether a CIT version of a fund exists, and whether the plan could actually use it. For each fund in the lineup that has one, write down what the plan pays today, what the CIT version would cost, and what the participation agreement says about getting out.

First Hill Trust Company and BAC Capital Advisors, its affiliated SEC-registered investment adviser, can go through a lineup fund by fund, compare what a plan holds against the versions it qualifies for, and point out the terms in any collective trust documents worth raising with your counsel. 

Call (206) 625-1800 to schedule a complimentary review, or download The CIT Review Checklist and work through it with your committee first.

Plan Sponsor FAQs

Sources

• Office of the Comptroller of the Currency, Collective Investment Funds, Comptroller’s Handbook
• Office of the Comptroller of the Currency, Bulletin 2011-11, Collective Investment Funds and Outsourced Arrangements
• U.S. Code of Federal Regulations, Title 12, Section 9.18, Collective Investment Funds
• U.S. Code of Federal Regulations, Title 17, Section 270.18f-3, Multiple Class Companies
• U.S. Code of Federal Regulations, Title 29, Section 2550.404a-5, Disclosure of Plan and Investment Related Information
• Employee Retirement Income Security Act, Sections 403(a), 404(a), 405(a), and 409(a)
• SECURE 2.0 Act of 2022, Section 128

Important Disclosures

First Hill Trust Company is a Washington State-chartered trust company. Investment advisory services are provided by BAC Capital Advisors, an SEC-registered investment adviser and a wholly owned subsidiary of First Hill Trust Company. Registration does not imply a certain level of skill or training. This article is educational. Neither First Hill Trust Company nor BAC Capital Advisors is acting as ERISA counsel or tax counsel to any plan or plan sponsor, and nothing here replaces advice from qualified counsel about your own plan.

Accuracy and currency. Statutory provisions and regulatory descriptions in this article were checked against the cited primary sources as of the date of publication, but First Hill Trust Company and BAC Capital Advisors make no representation or warranty as to the accuracy, completeness, or timeliness of the information, and accept no liability for actions taken in reliance on it. Regulations and guidance change. Confirm current requirements with qualified counsel.

Educational purpose only. Provided by First Hill Trust Company for general informational and educational purposes only. It is not legal, tax, accounting, investment, or fiduciary advice, does not constitute a recommendation regarding any plan, investment, strategy, or course of action, and does not consider any recipient’s specific circumstances. Consult your own qualified advisors before acting.

No offer, agreement, or commitment. Nothing in this material constitutes an offer, solicitation, agreement, or commitment to provide any particular service or to assume any particular responsibility. Descriptions of what a trustee, administrator, adviser, committee, employer, or other party “may” or “can” do are illustrative of how such arrangements commonly work and do not describe the terms of any specific engagement. The actual services provided, the allocation of responsibilities, the scope of any delegation, and the duties of any party are governed solely by the applicable plan documents, trust agreement, advisory agreement, and written service agreements. In the event of any inconsistency, those documents control.

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Statutory and regulatory references. References to ERISA, the Internal Revenue Code, and related statutory or regulatory provisions are general summaries only. They are not a substitute for review of the actual statutory text, regulations, or guidance from the Department of Labor, Internal Revenue Service, or other relevant authorities, and they do not address how those provisions may apply to any particular plan, sponsor, fiduciary, or individual. Laws, regulations, and guidance are subject to change and to interpretation by the relevant agencies and courts. Examples, categories, and situations described are simplified for illustration and may not reflect the requirements or circumstances of any particular plan or person.

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For more information, contact First Hill Trust Company at (206) 625-1800.