Reporting requirements
In recent news, there is also a potential broadening of access to CITs for additional investor types. Notably, with the House of Representatives passing SECURE 2.0 in March 2022, it opens the door for the Senate to also grant approval. That, in turn, could allow 403(b) plans to begin offering CIT vehicles to their participants. Across plan sizes, we see a major opportunity for cost savings through a transition to CITs, where appropriate.
Mutual funds are required to report performance and holdings on at least a semiannual basis, in a standardized manner, as well as to provide quarterly account statements to investors. By contrast, OCC-regulated CITs are only required to issue financial reports on an annual basis, although most report performance information to participating plans more frequently. Mutual funds are legally required to provide investors with a prospectus, an offering document that discloses information on a fund’s investment objective, portfolio managers, fees, services, restrictions, and policies, along with information related to risks, conflicts of interest, and other topics prescribed by the SEC. CITs do not issue prospectuses. But for certain CITs available through DC plans, there may be fact sheets, profiles, or other available material that provide information such as performance, turnover, expenses, investment objectives, and strategies.
Further, unlike with mutual funds, a plan sponsor or other plan fiduciary authorizing the plan’s investment in a CIT enters into a participation or investment agreement with the bank trustee of the CIT. Wellington Trust’s investment agreement with participating plans includes terms related to a CIT’s fees and expenses, permissible investments, and investment objective.