Example of CITs in action
Let's use an example of Wheat of the World, a midsized agricultural trading company offering a 401(k) plan to its employees. To provide better investment options, the plan sponsor incorporates a collective investment trust focused on commodities and agricultural equities. This CIT pools contributions from all participants and avoids the marketing and distribution fees typically associated with mutual funds. Instead, the trust invests in a professionally managed, diversified portfolio of agricultural-related assets, such as farming technology companies, grain exporters, and fertilizer manufacturers.
Over time, employees benefit from lower fees and the strategic oversight of professional managers who align the investments with industry trends, like increasing global demand for wheat or advancements in agricultural technology. The CIT’s tailored focus supports employees’ retirement savings growth and reflects the company’s core industry, making it a win-win situation for both the employees and the company.