The Resurgence Of Collective Investment Trusts

Law360, New York (June 15, 2010) -- Bank collective investment trusts (“collective trusts”), a first cousin of the mutual fund, have been around for more than 70 years. Offered to both defined benefit and defined contribution plans, collective trusts today are vying to compete with mutual funds and other pooled investment vehicles as a mainstream product in the retirement plan marketplace.

Since the 1990s, mutual funds have overshadowed collective trusts as funding vehicles in the defined contribution plan marketplace for a number of reasons, including perceived advantages offered by mutual funds in the area of administration, pricing, record-keeping and performance advertising. However, collective trusts are now beginning to increase their share of the retirement plan market by competing successfully in terms of administration, pricing, record-keeping and overall cost.

But perhaps even more important, collective trusts have generally been able to weather the regulatory scrutiny of retirement plan fees and expenses. Collective trusts often have lower expense levels than comparable mutual funds. Collective trusts also are gaining attention as vehicles that arguably allow for more flexibility than mutual funds with respect to product design and the ability to avail themselves of certain alternative investments to a greater degree than mutual funds.

While the collective trust offers exciting possibilities to the investment manager, it also is fraught with certain traps for the unwary. In this piece, we briefly review the securities law framework applying to collective trusts and then discuss recent statements made by the U.S. Securities and Exchange Commission staff with respect to these vehicles.