PLANSPONSOR - May/June 2024 - 13

CIT Assets
Vs. Mutual
Fund Assets
TARGET-DATE funds collected roughly
$156 billion in new assets in 2023 via
flows and investment growth-67% of
which went to collective investment trust
structures, according to annual data from
Morningstar. Total assets in TDFs hit $3.5
trillion last year.
CITs accounted for 49% of TDF
assets at the end of 2023, and the investment
structure is expected to overtake
mutual funds as the most popular targetdate
vehicle by the end of this year, says
Morningstar's " 2024 Target-Date Strategy
Landscape " report.
CITs will
" likely be around 51% "
of total target-date strategy assets by
December 31, depending " on the way the
market moves, " says Megan Pacholok,
a senior analyst of manager research at
Morningstar and the report's lead author.
Besides the growing concentration of
TDF assets in CITs, Morningstar reported
a concentration of the TDF business being
with a small number of asset managers.
The five largest TDF managers last year
managed about 80% of the market, and
the 10 largest firms accounted for about
94%, the report says.
The increased availability of CITs
in TDF strategies " could give plan sponsors
more access to lower-cost options, "
Pacholok notes.
While " CITs are pretty dominant in
larger plans with larger plan sponsors, if
they become more and more common,
we can see [them] moving down-market "
to midsize or smaller plans and affecting
plan fees, she says.
" We think this momentum will
continue, " Pacholok adds. " Because CIT
and mutual [fund] TDF asset flows were
relatively close at the end of 2023, it makes
sense that [CIT flows] would be more
popular at the end of 2024. "
For the past five years, the asset flows
TIDBITS
A SECURE Upgrade
The saver's match, established by the SECURE [Setting
Every Community Up for Retirement Enhancement] 2.0
Act of 2022, will benefit around 21.9 million workers. It
transforms the saver's tax credit, aimed at lower-income
workers contributing to retirement plans, into a federal
government match. Payments should commence in 2027.
Source: EBRI
ASK THE EXPERTS
How Can a Late 403(b) Plan
Remittance Be Corrected?
QUESTION: We had a late remittance last year for our ERISA [Employee
Retirement Income Security Act] 403(b) plan, which we corrected under the
Department of Labor's Voluntary Fiduciary Correction Program. We understand
that we must complete IRS Form 5330, as well, to pay the excise
tax on the lost earnings on the late remittances. However, the excise tax
amounts to only about $100. Do we still need to file the form?
ANSWER: No, but not because of a de minimis exception, because there isn't one. 403(b)
plans do not need to file Form 5330 or pay the excise tax on the lost earnings, as Form
5330 applies only to plans as they are defined under the Internal Revenue Code's prohibited
transaction rules set out in Section 4975: Section 4975's definition of a " plan " does
not include 403(b) plans.
But, in addition to your VFCP filing, if you are a large ERISA 403(b) plan that is subject
to audit-i.e., having more than 100 employees-note that you will also need to report the
late remittance on your 2023 Form 5500 filing, so you should notify your plan auditors of
the late remittance. It is also important to note that, while this is unlikely, the DOL has the
authority to assess a civil penalty in the case of prohibited transactions, and 403(b) plans
could be subject to a 5% civil penalty for late remittances under ERISA 502(i).
Kimberly Boberg, Taylor Costanzo, Kelly Geloneck and David Levine, with Groom
Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer
readers' questions. This does not constitute legal advice and cannot be used
or substituted for legal or tax advice. Forward your questions for the Experts to
Amy.Resnick@issmediasolutions.com, with " Ask the Experts " as the subject.
into CITs have increased. Allocations to
TDFs in CITs rose about 2% of market
share annually, Pacholok notes. In
2019, TDF allocations to CITs were 40%
of the total market share, according to
Morningstar data.
For its " Target-Date Strategy Landscape "
report, Morningstar gathered the
data on mutual fund and CIT TDFs from
its proprietary database. The report's TDF
assets inflow data are as of year-end 2023.
-Noah Zuss
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