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Collective Investment Trust (CIT) 101: The Role of a Trustee in a Successful CIT Strategy

The critical function of a CIT trustee is often misunderstood, and this is compounded by the differences in the levels of trustee expertise. A trustee plays a crucial role; they are the ultimate “fiduciary” responsible for the investment management and compliance oversight of each CIT Fund.


Fiduciary Responsibility

Let’s first dive into the definition of “fiduciary:”

Under the Employee Retirement Income Security Act of 1974 (ERISA) a fiduciary is anyone who exercises discretionary authority or control over the assets or management of a retirement plan. This includes individuals (or trustees) who provide investment advice to the plan or have responsibility for plan administration. Fiduciaries must act prudently, diversify investments, follow plan documents, and avoid conflicts of interest to protect the plan's assets and plan participants' interests. They play a crucial role in ensuring retirement plans are managed in the best interests of participants and beneficiaries. 


One important distinction is the type of capacity in which a fiduciary may serve:

  • The Trustee of a CIT, such as Great Gray Trust Company, serves as the ERISA Section 3(38) trustee, which means they maintain ultimate discretion and control over the CIT’s

    • investment management strategy, and

    • compliance oversight and governance

  • The Trustee has authority to select sub-advisors to execute the investment management strategy and manage the portfolio assets. A sub-advisor, also known as an ERISA Section 3(21) investment manager, has investment discretion to manage the underlying investments within a collective fund because it has been delegated to do so by the Section 3(38) trustee


Given the scope of these responsibilities, choosing a reliable and efficient trustee is crucial for the implementation of successful CIT strategies. To go a step further, it’s best practice to work with a trustee who can prioritize fiduciary governance while also rapidly innovating.


Good Governance

A trustee's good governance practices are formed by a deep understanding of regulations.

Effective CIT governance is driven by a triad of regulatory forces: State and Federal banking or trust laws, ERISA, and Federal Securities laws. Adherence to these regulatory requirements help CITs implement and maintain well-designed policies and procedures:

  • State and Federal Banking or Trust Laws: Enforce prudent oversight and continuous due diligence.

  • ERISA: Outlines fiduciary duties and the duty to avoid prohibited transactions.

  • Federal Securities Laws: Require Trustees (a federal or state bank or trust company) to maintain “substantial investment responsibility” over the CIT for it to be eligible for federal securities law exemptions allowing for cost savings compared to mutual funds.


Additional best practices in CIT governance involve

  • Organizational Structure: Establish clear authority, responsibility, and accountability

  • Sub-advisor Oversight: 

    • Conduct regular reviews of investment management and performance through the oversight and routine reporting

    • Oversee adherence to the stated investment guidelines for each CIT


Thought Leadership

To distinguish themselves further, a good trustee:

  • Provides relevant insights into the latest fiduciary rules and regulations

  • Shares the latest industry-related, innovative thought leadership

  • Discusses product development ideas inclusive of fund strategies, share class strategies and pricing


The trustee's role is to implement strong, consistent fiduciary practices to fulfill these regulatory requirements and have a sound operational framework. Understanding a trustee's approach to fiduciary decision-making governance and the best practices they follow is essential for a plan administrator to evaluate the quality of their CIT offerings.


Willingness to Innovate

Innovations like Great Gray's boardingpass streamline and enhance the efficiency of the onboarding process. Trustees are also working towards increasing transparency about CITs and simplifying access to CIT information for plan advisors through accessible investment research services like Morningstar®


Choosing a Trustee

For plan advisors who want to invest in CITs, it is essential to consider the governance practices of an institution when evaluating prospects. 


The significant regulatory focus on trust companies and banks that offer CITs help to ensure they fulfill their fiduciary role with sound practices and procedures.  


Considering the importance of protecting CIT investor interests, 401(k) plan sponsors, advisors, and other plan fiduciaries should inquire about good governance practices when evaluating their CIT trustee options.


In addition, you should also evaluate and assess your chosen trustee’s output of thought leadership, their place in the retirement ecosystem, and willingness to innovate. 


Evaluate Great Gray as your trustee here.


Great Gray Trust Company, LLC Collective Investment Funds (“Great Gray Funds”) are bank collective investment funds; they are not mutual funds. Great Gray Trust Company, LLC serves as the Trustee of the Great Gray Funds and maintains ultimate fiduciary authority over the management of, and investments made in, the Great Gray Funds. Great Gray Funds and their units are exempt from registration under the Investment Company Act of 1940 and the Securities Act of 1933, respectively. 

 

Investments in the Great Gray Funds are not bank deposits or obligations of and are not insured or guaranteed by Great Gray Trust Company, LLC, any bank, the FDIC, the Federal Reserve, or any other governmental agency. The Great Gray Funds are commingled investment vehicles, and as such, the values of the underlying investments will rise and fall according to market activity; it is possible to lose money by investing in the Great Gray Funds.

 

Participation in Collective Investment Trust Funds is limited primarily to qualified retirement plans and certain state or local government plans and is not available to IRAs, health and welfare plans and, in certain cases, Keogh (H.R. 10) plans. Collective Investment Trust Funds may be suitable investments for plan fiduciaries seeking to construct a well-diversified retirement savings program. Investors should consider the investment objectives, risks, charges, and expenses of any pooled investment fund carefully before investing. The Additional Fund Information and Principal Risk Definitions (PRD) contains this and other information about a Collective Investment Trust Fund and is available at www.greatgray.com/principalriskdefinitions or ask for a free copy free by contacting Great Gray Trust Company, LLC at (866) 427-6885.

 

Great Gray and Great Gray Trust Company are service marks used in connection with various fiduciary and non-fiduciary services offered by Great Gray Trust Company, LLC.

 

©2024 Great Gray Trust Company, LLC. All rights reserved.



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