PLANSPONSOR - June/July 2018 - 14

Upfront
Will 403(b)s Ever Share CIT Benefits?
fees are a big issue for fiduciaries-which
makes finding the best share class key-
as is litigation.
Michael Sanders, principal at
Cammack Retirement Group, says, " ...
if you have a large pool of money in a
qualified plan and you want to dial in
the fees and not necessarily pay the share
class, you might develop, for instance, your
own large-cap growth CIT. " That would
allow a plan sponsor to have a custom or
white label fund in which it could name
the investment and hire the underlying
manager, he says.
But, alternatively, many investment
management firms are creating CIT
versions of popular mutual funds to let
them lower costs. Mutual fund companies
have come out with CIT versions of their
mutual funds or target-date funds (TDFs),
allowing easier access to the advantages of
CITs for plan sponsors. All qualified plans
other than 403(b)s, no matter their size,
can take advantage of these vehicles, as
can 403(b) church plans.
When asked if any rule changes in
the 403(b) market might allow CIT use,
Sanders says, " Ultimately, mutual fund
fees have been coming down, and most
403(b) plans are smaller-it's a nonissue.
" But in the larger 403(b) market, it
WITH excessive fee lawsuits extending
to the 403(b) space, and account assets
growing all the time, many 403(b) plan
sponsors are asking their advisers or
providers about offering a collective
investment trust (CIT)-a vehicle similar
to a mutual fund but generally lower in
cost-on their plan menu.
What types of 403(b) plan sponsors
may use a CIT? Bruce Ashton, a partner
in the employee benefits and executive
compensation practice group at Drinker,
Biddle and Reath, says, " The tax law
permits virtually all types of 403(b)s
to participate. The problem lies in the
14 PLANSPONSOR.com June-July 2018
securities laws: 3(c)(11) permits only
qualified plans, government plans and
church plans. Therefore, tax-exempt
403(b)s can't participate unless the CIT
can qualify for another securities law
exemption or the CIT registers as a mutual
fund ... which defeats the purpose. "
Consequently, 403(b) plans are
restricted to using 403(b) annuity contracts
and 403(b)(7) custodial accounts-also
known as mutual funds.
More defined contribution (DC) plans
are using CITs because plans are getting
bigger, and with size comes the pricing
power needed for access. Additionally,
Art by Jackie Ferrentino
would be very good if CITs were available, "
he continues. " I don't know that anything
will change. I don't know that this one
piece of the [Internal Revenue C]ode will
garner the amount of attention it will need
to make it happen. But if it did happen, it
would be a good additional tool that large
plan sponsors would have. "
" Theoretically, " says Ashton, " 403(b)
sponsors would save money by using CITs.
The value of a CIT is that, as it doesn't need
to register under the federal securities laws,
plan sponsors don't have the cost of registration
and prospectus preparation, and of
keeping a prospectus current, so there's a
lot of savings. " -Judy Faust Hartnett
http://www.plansponsordigital.com/plansponsor/june-july_2018/TrackLink.action?pageName=14&exitLink=http%3A%2F%2FPLANSPONSOR.com
PLANSPONSOR - June/July 2018

Table of Contents for the Digital Edition of PLANSPONSOR - June/July 2018
