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Transcript of CITs & Group Trusts - WP&BC Portland › resources › Documents... · “In a December 2015 survey...
CITs & Group TrustsSimplifying and Scaling
Retirement Plans
Current Indust ry T rends
Aggregation/
Consolidation
Fee
Compression
Current State of Retirement Industry
1) Having the qual i f icat ions i s not enough to dist inguish yoursel f anymore
2) Ret i rement Advisory and Recordkeeping i s becoming commodit ized
• W h e n s o m e t h i n g b e c o m e s a c o m m o d i t y a n d t h e r e i s n o d i f f e r e n t i a t i o n b e t w e e n p r o d u c t s t h e n t h e o n l y p l a c e t o c o m p e t e i s o n p r i c e .
The Power of CITs & Group TrustsUnlock Economies of Scale
Clear, Tangible & Simple Process
D i f fe ren t ia te Your se l f
CITs
&
Group
Trusts
1981 IRS Revenue
Ruling 81-100
How are you able to Pool Assets and not Create a Mutual Fund?
Investment Company Act of 1940 section 3(c)(11)“Any employee’s stock bonus, pension, or profit-sharing trust which meets the requirements for qualification under section 401 of the Internal Revenue Code of 1986; or any governmental plan described in section 3(a)(2)(C) of the Securities Act of 1933; or any collective trust fund maintained by a bank consisting solely of assets of one or more of such trusts, government plans, or church plans, companies or accounts that are excluded from the definition of an investment company under paragraph (14) of this subsection; or any separate account the assets of which are derived solely from (A) contributions under pension or profit-sharing plans which meet the requirements of section 401 of the Internal Revenue Code of 1986 or the requirements for deduction of the employer’s contribution under section 404(a)(2) of such Code, (B) contributions under governmental plans in connection with which interests, participations, or securities are exempted from the registration provisions of section 5 of the Securities Act of 1933 by section 3(a)(2)(C) of such Act, and (C) advances made by an insurance company in connection with the operation of such separate account.”
Investment Company Act of 1940 section 2(5)(5) ‘‘Bank’’ means:
(A) a depository institution (as defined in section 3 of the Federal Deposit Insurance Act) or a branch or agency of a foreign bank (as such terms are defined in section 1(b) of the International Banking Act of 1978)(B) a member bank of the Federal Reserve System
(C) any other banking institution or trust company, whether incorporated or not, doing business under the laws of any State or of the United States, a substantial portion of the business of which consists of receiving deposits or exercising fiduciary powers similar to those permitted to national banks under the authority of the Comptroller of the Currency, and which is supervised and examined by State or Federal authority having supervision over banks, and which is not operated for the purpose of evading the provisions of this title(D) a receiver, conservator, or other liquidating agent of any institution or firm included in clause (A), (B), or (C) of this paragraph.”
“Bank-maintained” under the federal securities laws has been interpreted by the SEC to mean “substantial investment responsibility”.
Plans
Available
to CITs and
81-100 Group
Trusts
401(k)
P rof i t shar ing
Def ined Benef i t
457(b)
Cash Ba lance
Money Purchase P lans
403(b) (9)
Taf t -Har t ley
State Municipal or Government
Collective Investment Trusts• E s t a b l i s h e d i n 1 9 2 7• A l s o r e f e r r e d t o a s C o l l e c t i v e I n v e s t m e n t T r u s t s a n d C o l l e c t i v e T r u s t F u n d s• H i s t o r i c a l l y t h e p r e f e r r e d r e t i r e m e n t v e h i c l e• B a n k s p o n s o r e d a n d t h e r e f o r e e x e m p t f r o m ’ 4 0 A c t r e g i s t r a t i o n• T r u s t b a s e d• B o a r d o f D i r e c t o r s o f t h e B a n k o v e r s e e t h e T r u s t• B a n k a n d I n v e s t m e n t M a n a g e r a r e b o t h E R I S A f i d u c i a r i e s• O n l y a v a i l a b l e t o q u a l i f i e d r e t i r e m e n t T r u s t s
• 4 0 1 k • 4 0 1 ( a ) / P r o f i t S h a r i n g • D e f i n e d B e n e f i t / P e n s i o n • T a f t - H a r t l e y• 4 0 3 b ( 9 ) - C h u r c h S p o n s o r e d P l a n s • 4 5 7 ( b ) • S t o c k B o n u s • I n s u r a n c e C o . S e p a r a t e A c c o u n t s• C a s h B a l a n c e P l a n s • S t a t e a n d M u n i c i p a l R e t i r e m e n t P l a n s
• C I T s t r a d e o n t h e N S C C a s o f M a r c h o f 2 0 0 0• M o r n i n g s t a r C I T d a t a b a s e e s t a b l i s h e d i n 2 0 0 7• L e v e r a g e t h e s e l l i n g a g r e e m e n t s o f t h e B a n k s p o n s o r• N o p a y t o p l a y p l a t f o r m s c h e m e s
CIT TRENDS
C I T a s s e t s a r e e s t i m a t e d t o s u r p a s s $ 3 t r i l l i o n b y t h e e n d o f 2 0 1 8
C I F a s s e t g r o w t h h a s e x c e e d e d t h e o v e r a l l r e t i r e m e n t m a r k e t w i t h a 7 - y e a r C A G R o f 1 4 . 4 % c o m p a r e d t o 9 % f o r t h e r e t i r e m e n t m a r k e t .
Source: Erach Desai and Jason Dauwen. DST Systems and ALPS. Collective Investment Trust – A Perfect Storm, March 2017.
S i n c e 2 0 1 2 , C I T u s e h a s g r o w n b y 3 5 % w i t h i n D C p l a n s , w h i l e t h e u s a g e o f m u t u a l f u n d s h a s d e c r e a s e d .
Source: Callan 2017 DC Trends Survey
Use of CITs in DC Plans Booming, Rises 68% Since 2008
“In a December 2015 survey by Cerulli, 18.8% of DC plan executives said they would convert mutual funds to collective investment trusts when asked if they planned to change their
investment structures over the next 12 years.”- Pnesion & Investments, February 22, 2016
CITs Continue Growth“Collective investment trusts are still climbing –
both in use and in offerings.”- Benefits Pro, January 29, 2016
The ‘Explosion’ of Collective Trusts in 401ks
“Plan sponsors thought they had to be big to use CITs; not true...”
- 401k Specialists,, February 23, 2016
CIT Adoption on the Rise in DC Plans“The potential pricing flexibility and cost advantages that
CITs offer when compared with other investment vehicles are translating into a rising demand in the DC market.
Of the 100 largest corporate DC funds in 2016, CITs were used by 54.3%, more than mutual funds, separate accounts and
ETFs combined.”
- Pnesion & Investments, February 23, 2017
Scale Investment Strategies Efficiently
Reduce investment costs
Simplify Model Management
Principal Use Cases for CITs
Scale Investment StrategiesOne Trading Account
Dai ly NAVs
Operat ional ly s imi lar to mutual funds
Fee F lex ib i l i ty
Investment Holding F lex ib i l i ty
Reduce Investment Costs
• CIT vs MF -Callan 2018 Defined Contribution Trends Survey
0
10
20
30
40
50
60
70
80
90
100
US LargeCapCore
InternationalEquity
Target DateFunds
US CoreInvestment
Grade
TER (bps)*
CITsMutual Funds
*assuming $100 MM
401k and ERISA-covered 403b plans through September 2016. Source: Investment News analysis of Groom Law Group data
ERISA LITIGATIONNumber of retirement-fee-cases filed annually
0 5 10 15 20 25 30 35
20162015
2014
2013
2012
20112010
2009
2008
20072006
Notable Cases:• Boeing
• Anthem
• Nordstrom
• Lockheed Martin Corp
• Tibble v. Edison (U.S. Supreme Court)
= Settlements over $300 million
Simpl i fy ModelManagement
Recordkeeper Models Model in CITs
Multiple Accounts One Account
Notifications when new securities are traded
No notifications to participants for trading new securities
Limitation on the types of securities that can be held in the model Expanded available securities
Varying Performance Consistent Performance
What is an 81-100
Group Trust?
Record Keeper
InvestmentManager
Custodian
81-100GROUPTRUST
Plan
Plan
Plan
Plan
Plan
PlanTrust
TrustTrust
Trust
Trust
Trust
MEPS vs 81-100 Group TrustM E P
81-100 GROUP TRUST
M E P
81-100 GROUP TRUST
PlanSpecifications
PlanSpecifications
PlanAssets
PlanAssets
Does each plan still need its own trust?
81-100GROUP TRUST
Plan
Plan
Plan
Plan
Plan
Plan
T ru s tT r u s t
T r u s t
T ru s t
T ru s t
T r us t
MEPS
Record Keeper
InvestmentManager
Custodian
81-100GROUPTRUST
TrustTrust
Trust
Trust
Trust
Trust
Plan Advisor
Plan Advisor
Plan Advisor
Plan Advisor
Plan Advisor
Plan Advisor
Plan
Plan
Plan
Plan
Plan
Plan
81-100GROUP TRUST
Small plan solution
ASSOCIATIONGROUP TRUST
Associationsor
Groups Member
401(k)
401(k)
401(k)
401(k)Member
Member
Member
Association
81-100GROUP TRUST
WealthManager
401(k)
401(k)
401(k)
401(k)
Wealth Client
Wealth Client
Wealth Client
Wealth Client
Wealth Manager
Broker/Dealer RIA
81-100 GROUP TRUSTFUND LINEUP
Large Cap
Mid Cap
Small Cap
Fixed Income
International
Target Date
Large Cap
Mid Cap
Small Cap
Fixed Income
International
Target Date
Large Cap
Mid Cap
Small Cap
Fixed Income
International
Target Date
Types of Investments Available
8 1 - 1 0 0 G R O U P T R U S TF U N D
L I N E U P
C I T s
Mutual Funds
E T F s
U M A s
S M A s
Process for Adding Plans to a Group Trust
Plan fiduciary signs the participation agreement
Record keeper coordinates the conversion of assets
8 1 - 1 0 0G R O U PT R U S TF U N DL I N E U P
Mid Cap Mutual Fund
Small Cap Mutual Fund
Large Cap Mutual Fund
International Cap Mutual Fund
8 1 - 1 0 0G R O U PT R U S TF U N DL I N E U P
Mid CapCIT
Small CapCIT
Large Cap CIT
International CapCIT
Lower Fees
Benefits of CITs & Group Trusts
Simple Process
Differentiates Your
Company
Unlocks Economies
of Scale
Thank You
Stephen Ponder(303) 996-3784
sponder@t rus ta l ta .com
Questions?