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A Collective Trust Fund OverviewBackground Since 1927, Collective Trust Funds have been a valued and respected investment vehicle within the retirement plan community. As a tax-exempt, pooled investment vehicle that consists solely of assets of retirement, pensions, profit sharing, stock bonuses and other trusts that are exempt from federal income tax, CTFs have historically provided significant value to retirement plans. The Decline, A Brief History In the 1980s, after the arrival of 401k programs, the retirement savings landscape began to change. While CTFs were originally used in the first 401k plans, mutual funds made significant inroads, because of their ability to offer ready-made solutions and attractive features for savings plans that required far higher levels of client service than CTFs had been structured to provide. By the late 1990s, defined contribution assets and participants surpassed those of defined benefit plans in the private sector, and mutual funds easily outstripped CTFs' market share within defined contribution plans. The bulk of CTFs remaining in the defined contribution market were composed of stable value and passive index funds. CTFs make a Comeback The resurgence of CTFs occurred just a few years ago. Around 2003, the competitive conditions in the marketplace began to shift. The comeback of CTFs was driven by plan sponsor's interest in a vehicle with lower fees (lower by 25% in some cases) compared to mutual funds, and their flexible nature. Furthermore, sponsors recognized that significant product and technology improvements had equipped CTFs with most of the features that had initially given mutual funds an edge in 401k plans. In fact, advances in trading and clearing of fund transactions through The National Securities Clearing Corporation (NSCC) played a major role in the resurgence of CTFs during the past decade. Recently, CTFs began gathering momentum in defined contribution plans. In 2003, CTFs held a solid position in defined contribution plans, with 32% including CTFs in their investment line-ups. In only four years, by 2007, this figure had grown to 39%, while institutional mutual fund usage leveled off. Additionally, the percentage of plans using retail mutual funds actually declined 7% during this period, from 65% to 58%. CTFs in Retirement Plans Today Today, market trends show that CTFs are more active and diverse than many other retirement vehicles. Given this, there have been significant changes in the mix of funds used by plan sponsors. In the defined contribution market, non-stable value funds, principally equity and fixed income vehicles, have risen sharply as plan sponsors begin to recognize the value of CTFs as a diverse investment tool, compared to the 80's and 90's when stable value was the preferred choice. A survey conducted by the NSCC for the period of October 2007 through March 2008 shows that average monthly non-stable value volume accounted for 57% of total CTF transactions processed, and over 70% of the total dollar volume. While, there is no denying that stable value funds remain an important element for retirement plans, the market has now recognized the numerous benefits of pursuing a broader array of CTF styles. During this period of growth, CTFs are also being added to less traditional retirement plans. Of late, distribution platforms have also begun embracing CTFs in their portfolios - further adding to their marketplace acceptance. The Future The growth potential for collective trust funds has outpaced that of mutual funds in the retirement market. More investment management firms are reevaluating the position of CTFs in their portfolios. For example, of the $60 billion assets under management at Victory Capital Management, $3 billion are already in CTFs. The potential trajectory for CTFs is currently unmatched, and now is the ideal time for plan sponsors to investigate this productive investment vehicle. About Victory Capital Over the past 40 years, Victory Capital has become an expert in the field. The firm has successfully managed collective trust investments for a variety of institutional clients. More information at www.victoryconnect.com . The information in this article is based on data obtained from recognized services and sources and is believed to be reliable. Any opinions, projections or recommendations in this report are subject to change without notice and are not intended as individual investment advice. ### 401khelpcenter.com is not affiliated with the author of this article nor responsible for its content. The opinions expressed here are those of the author and do not necessarily reflect the positions of 401khelpcenter.com. This article is for informational and educational purposes only and doesn't constitute legal, tax or investment advise. | ||||
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