A former SEC official compares CITs to buying a car without a seatbelt — and they're taking over Americans' 401(k)s
Danni Santana
5 min read
Like many Americans, I have a percentage of my salary put into my 401(k) every paycheck. When I set it up, I chose a target date fund that invests in a mix of mutual funds, ETFs, and bonds for me. Over time, compound interest does its thing and my investments grow.
But quietly, according to a recent Bloomberg analysis (1), fewer employer-sponsored 401(k) plans are made up of mutual funds. Department of Labor data cited by the outlet shows that collective investment trusts (CITs) currently make up nearly 50% of all 401(K) plans offered by employers with over $10 billion in assets. (Note: The data accounts for retirement plans with at least 100 participants.)
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CITs are cheaper for employers to offer workers than mutual funds because there is no requirement for trusts to register with the Securities and Exchange Commission (SEC), which incurs costs like marketing and distribution fees (2). Products are also offered by banks that act as fiduciaries and therefore are overseen by the Office of the Comptroller of the Currency (3).
Critics argue this means CITs aren't subject to the same level of scrutiny and disclosures mutual funds are. The OCC isn't as equipped in handling retirement products and ensuring investor protections as the SEC, they add. A former SEC official told Bloomberg that CITs make investment decisions like mutual funds, but "are not regulated like one."
"You can save money when you're buying a car by not having to pay for a seatbelt," he added. "But it isn't always the best."
How do CITs differ from mutual funds?
CITs (4) are a pooled investment option that combines the money of multiple investors into a single portfolio. Unlike mutual funds, which can be purchased even outside of your work plan, CITs are only available through tax-qualified retirement plans. In other words, you can't just open a brokerage account and buy shares in a CIT.
CITs can hold the same assets as mutual funds in your 401(k). But they tend to charge lower fees because they're regulated differently. Without SEC oversight (5), compliance and administrative savings can be passed down to plan participants via reduced fees.
Currently, CITs are a multitrillion dollar business, just like mutual funds. But the cost incentives are making them more lucrative to offer employees, especially by larger employers. If plan sponsors can meet contribution limits, then CITs may make more sense for them. However, mutual funds could be a better fit for smaller plan sponsors (6).
In short, very. But estimating total assets held in CITs is incredibly difficult. Researchers largely rely on self-reporting by banks and surveys. The industry is so fragmented that it's hard for experts to really keep their finger on the pulse.
Since CITs aren't required to issue prospectuses like mutual funds, what they end up reporting depends on whether the trusts are registered at the federal or state level, according to Bloomberg. Many actually do, probably to a sufficient degree for plan sponsors and participants, but the lack of public information makes it difficult for experts to evaluate the industry.
Most estimates place the CIT market at or around $6 trillion to $7 trillion in assets. That's compared to $31.4 trillion invested (7) in mutual funds.
Interestingly, a 2026 Morningstar report (8) found CITs now hold 54% of assets held in target date funds as of the end of 2025. Target date funds are viewed as "set it and forget it" retirement plan options, instead of choosing your own stocks and ETFs.
Are CITs safe?
CITs are a legitimate investment vehicle. They just draw the ire of skeptics because they have limited oversight compared to traditional mutual funds, which are registered with the SEC under the Investment Company Act of 1940 (9). Because of this, they face stricter disclosure requirements and must provide daily cash values.
CITs do still face their own regulatory requirements. In addition to OCC oversight mentioned earlier, they are beholden to the Employee Retirement Income Security Act (10), and thus the Department of Labor.
Lower transparency, fewer restrictions on investment assets (private market exposure coming soon (11)), and products offered being controlled by banks are some of the reasons, however, critics think CITs are a bit of a murky proposition.
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Article Sources
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Bloomberg (1); Investopedia (2); Office of the Comptroller of the Currency (3); Investor.gov (4); T. Rowe Price (5); Cerulli Associates (6); ICFS (7); Morningstar (8); GovInfo (9); U.S. Department of Labor (10); Financial Times (11)