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Wealth & Asset Operations Track • Unit 6: Pooled Investment Vehicles

Lesson 6.5: Trust Structures and Collective Vehicles

Learn how trusts and collective investment structures hold and administer pooled assets under trustee governance. This lesson covers collective investment trusts, common law trusts, and related structures — how they differ from registered funds and limited partnerships, and what their operational characteristics mean for retirement plan and institutional investment administration.

Where This Lesson Fits

Lessons 6.1 through 6.4 covered the four major categories of pooled investment vehicles organized under two primary legal structures: investment companies registered under the '40 Act (mutual funds and ETFs) and limited partnerships exempt from registration (private equity funds and hedge funds). This lesson introduces a third legal framework for pooled investing — the trust — and the collective investment vehicles organized within it. Trust structures are not a minor corner of the investment landscape: collective investment trusts (CITs) are among the fastest-growing pooled vehicles in the retirement plan space, and common law trusts underpin much of how family wealth, charitable assets, and institutional endowments are held and managed.

This lesson connects directly to Lessons 6.6 and 6.7, which cover fund administration and shareholder accounting — topics that apply to CITs in modified form, since CITs calculate unit values rather than NAVs and maintain participant unit records through record keepers rather than transfer agents. It also connects to earlier units covering advisory and managed accounts, where trust structures frequently appear as the legal vehicle through which client assets are held and invested. Students who understand trust structures will be better equipped to handle the full range of vehicle types they encounter in institutional wealth management contexts.

At the system level, trust-based collective vehicles represent an alternative to registered fund structures that offers certain cost and governance advantages — particularly in the retirement plan context — while introducing a different regulatory framework and a different set of operational conventions. Understanding how and why these vehicles differ from registered funds helps students recognize the appropriate workflows and documentation standards for each vehicle type.

Lesson Objective

By the end of this lesson, students should be able to describe the trust legal structure and explain the roles of the trustee and beneficiaries; explain how collective investment trusts differ from registered mutual funds in their regulatory framework, eligible investors, and operational mechanics; describe how unit values are calculated in CITs and how they differ from mutual fund NAV; identify the key operational functions in CIT administration including unit accounting, record keeping, and participant servicing; and explain how common law trust structures are used to hold and administer investment assets in family wealth and charitable contexts.

Lesson Overview

A trust is a legal arrangement in which one party — the trustee — holds and manages assets for the benefit of another party — the beneficiary — under the terms of a trust document (the trust instrument or declaration of trust). The trustee has legal title to the assets, meaning they are technically owned by the trustee in their capacity as trustee, while the beneficiaries hold the equitable interest — the right to benefit from those assets according to the trust's terms. This separation of legal and equitable ownership is the defining characteristic of the trust structure and is the source of its distinctive legal properties, including the trustee's fiduciary duties to the beneficiaries and the protection of trust assets from the trustee's personal creditors.

Collective investment trusts are pooled investment vehicles established by banks or trust companies under state banking law or federal banking regulations, available exclusively to qualified retirement plans and similar tax-exempt entities. CITs pool the assets of multiple retirement plans — 401(k) plans, defined benefit pension plans, and similar vehicles — into a single trust that is managed by the bank or trust company acting as trustee. Individual plan participants do not invest directly in the CIT; instead, the retirement plan itself invests in the CIT, and the plan's participants hold units of the plan's account in the CIT through the plan's record-keeping system. This institutional-only structure exempts CITs from registration under the Investment Company Act, allowing them to offer investment management at lower cost than comparable registered mutual funds — an advantage that has driven significant growth in CIT adoption within the retirement plan market.

The operational mechanics of a CIT parallel those of a mutual fund in important ways but use different terminology and follow a different regulatory framework. The CIT calculates a unit value — the per-unit equivalent of a mutual fund's NAV — typically daily, by dividing the trust's total net assets by the total number of units outstanding. Retirement plans invest in the CIT by purchasing units at the current unit value; they exit by redeeming units at the unit value at the time of redemption. Unlike mutual fund shares, however, CIT units are not registered securities and cannot be sold or transferred outside the retirement plan context. The trustee — not the plan or its participants — is the legal owner of the underlying assets, and the plan is an investor in the trust, not a direct owner of the securities.

Beyond CITs, the trust structure appears in wealth management in a variety of other forms. Common law trusts — established under state law through a trust document created by a settlor and managed by a trustee for named or described beneficiaries — are the fundamental vehicle through which family wealth is held across generations, charitable assets are administered, and institutional assets are managed under specific governance arrangements. Bank trust departments manage many billions of dollars in assets held in common law trusts, and the operational workflows supporting these trusts — account opening, trustee administration, investment management, distribution, and tax reporting — are distinct from those of registered funds and partnership vehicles. Understanding the basic trust structure is foundational for anyone working in bank wealth management, trust administration, or family office services.

Why This Matters in Wealth & Asset Operations

CITs are one of the most rapidly growing investment vehicle types in the retirement plan space, and wealth management firms with retirement plan administration practices — 401(k) recordkeeping, defined benefit plan custody, and plan advisory services — routinely work with CIT investments. Operations teams that understand how CIT units are valued, how plan investments in CITs are processed, and how unit accounting differs from mutual fund share accounting will be equipped to handle these vehicles correctly across recordkeeping, reconciliation, and reporting workflows. Those who approach CITs as if they were mutual funds — expecting transfer agent records, registered share classes, and SEC filings — will encounter systematic confusion about where records are kept, what regulatory framework applies, and how to resolve discrepancies.

Common law trust administration creates a distinct operational environment within bank wealth management and trust departments. Every trust is governed by its individual trust instrument, which specifies investment powers, distribution standards, trustee discretion, and the rights of different classes of beneficiaries. Operations staff supporting trust accounts must review the trust instrument to understand what the trustee is permitted to do — and what requires beneficiary consent or court approval — before processing any significant investment or distribution. Unlike an advisory account where the investment policy statement governs the advisor's actions, the trust instrument is a legal document with governance authority that supersedes the trustee's preferences or the client's requests.

From a regulatory perspective, both CITs and common law trusts operate under frameworks distinct from the Investment Company Act. CITs are regulated by banking regulators — the OCC for national bank trustees, state banking regulators for state-chartered institutions — and must comply with the Employee Retirement Income Security Act (ERISA) when used in qualified retirement plans. Common law trusts are governed by state trust law and the trust instrument itself. Operations and compliance teams supporting these vehicles must understand which regulatory framework applies and what specific obligations it creates, rather than defaulting to the '40 Act framework that governs registered investment companies.

Core Concept

Collective Investment Trust (CIT) — A pooled investment vehicle established and maintained by a bank or trust company under banking law, available exclusively to qualified retirement plans and similar tax-exempt entities, exempt from registration under the Investment Company Act, and governed by the trustee's fiduciary duties to participating plans under ERISA.

Trustee — The party who holds legal title to trust assets and manages them for the benefit of the trust's beneficiaries under the terms of the trust instrument, subject to a fiduciary duty of loyalty, prudence, and impartiality to all beneficiaries.

Unit Value — The per-unit equivalent of a mutual fund's NAV in a collective investment trust, calculated by dividing the trust's total net assets by the total number of outstanding units, used to process plan investments and redemptions in the CIT.

These three concepts define the operational core of trust-based collective investing. The CIT is the pooled vehicle; the trustee is the legal and fiduciary actor responsible for managing it; and the unit value is the pricing mechanism that governs plan investment and redemption activity within the trust. Together they establish a structure that parallels the mutual fund in economic function but differs substantially in legal form, regulatory framework, and eligible investor universe.

Structure of a Collective Investment Trust

A CIT involves a defined set of parties and documents that establish the trust, govern its investment activities, and provide for investor participation by qualified plans.

This structure creates a governance hierarchy that differs from both registered funds and private limited partnerships. The trustee is not merely a manager — it is the legal owner of the assets, with all the fiduciary responsibilities that title entails. Understanding where the trustee's authority begins and ends, and how it interacts with the participating plans' own ERISA fiduciary obligations, is essential for operations and compliance professionals working in the retirement plan investment space.

Trust Structures in Wealth Management Contexts

Beyond CITs, the trust legal structure appears across multiple wealth management contexts. Understanding the key forms helps students recognize trust-based vehicles when they encounter them.

Each of these trust forms has different investment authority, beneficiary rights, and operational requirements. The trust instrument is always the starting point for understanding what the trustee can and cannot do, and operations teams working with trust accounts must review the governing document before processing any transaction or making any assumption about the account's management structure.

CITs vs. Mutual Funds in the Retirement Plan Context

Collective investment trusts and mutual funds are the two dominant investment options offered within retirement plans, and the comparison between them is one that operations and plan advisory professionals encounter regularly. The most significant advantage of CITs over comparable mutual funds is cost. Because CITs are not registered securities, they do not bear the registration, disclosure, and compliance costs associated with the Investment Company Act. They also do not pay 12b-1 marketing fees, which are common in mutual fund distribution. The combination of lower administrative costs and institutional fee negotiating power has made CITs attractive to large retirement plans seeking to reduce investment expenses for their participants.

Transparency and disclosure present the most notable advantage of mutual funds over CITs. Mutual funds are required to file prospectuses, annual and semi-annual reports, and portfolio holdings disclosures with the SEC on a defined schedule, making this information publicly available. CITs are not subject to these disclosure requirements — they provide information to participating plans through their plans of operation and periodic reporting, but there is no public filing requirement and no standardized disclosure format that plans can compare across CIT providers. Plan fiduciaries who select CITs must conduct their own due diligence and cannot rely on the standardized SEC disclosure regime that simplifies mutual fund evaluation.

Operational workflows also differ between CITs and mutual funds in the plan context. Mutual fund transactions in a retirement plan are processed through a network that connects the plan recordkeeper to fund families through the NSCC (National Securities Clearing Corporation) fund processing infrastructure. CIT transactions are processed through direct arrangements between the plan recordkeeper and the CIT trustee — there is no standardized clearing network equivalent, and the mechanics of transaction processing, unit value reporting, and position reconciliation vary across CIT providers. Operations teams supporting plan recordkeeping must understand both workflows and apply the correct process for each vehicle type.

Operational Workflow

Administering a CIT within a retirement plan involves a defined set of operational activities across the plan recordkeeper, the CIT trustee, and the plan's investment advisor or fiduciary.

  1. Plan Participation Agreement Execution. A retirement plan that wishes to invest in a CIT must execute a participation agreement with the CIT trustee, agreeing to be bound by the trust's plan of operation. The operations team processes this onboarding documentation and establishes the plan's account in the CIT trustee's system.
  2. Daily Unit Value Calculation. The CIT trustee calculates the trust's unit value each business day, following the same basic methodology as mutual fund NAV calculation: pricing underlying securities at market, adding income, subtracting expenses and liabilities, and dividing by units outstanding. The unit value is published to participating plans and recordkeepers.
  3. Plan Investment Instruction Transmission. Based on participant allocation changes, fund flows, and plan-level rebalancing instructions, the recordkeeper calculates the net investment or redemption amount for the plan's CIT account and transmits the instruction to the CIT trustee. The instruction specifies the dollar amount to invest or redeem; the trustee converts this to units at the applicable unit value.
  4. Unit Purchase and Redemption Processing. The CIT trustee processes the plan's purchase or redemption instruction at the applicable unit value, updates the plan's unit account balance, and settles the corresponding cash movement with the plan's custodian or the trust's cash account.
  5. Recordkeeper Unit Accounting Update. The recordkeeper updates its records to reflect the plan's new unit balance in the CIT, which in turn determines how each participant's account balance in the plan is calculated — each participant's balance reflects their pro-rata share of the plan's total CIT unit holdings.
  6. Monthly and Quarterly Reporting. The CIT trustee provides participating plans with periodic reports showing the trust's portfolio holdings, performance, expenses, and unit value history. Operations teams validate these reports against the plan's own unit accounting records to ensure consistency.
  7. Annual Audit and Compliance Reporting. CITs are subject to annual audit by an independent auditor under bank regulatory requirements. The trustee provides audited financial statements to participating plans. Operations teams review these statements for consistency with the plan's investment records and provide them to plan fiduciaries as part of their annual compliance documentation.
  8. Plan Withdrawal and Exit. When a retirement plan wishes to exit a CIT — due to plan termination, investment option changes, or manager replacement — the plan submits a full redemption instruction. The trustee processes the redemption at the applicable unit value, returns the cash proceeds to the plan, and closes the plan's participation account. This process may have notice requirements specified in the plan of operation.
  9. ERISA Compliance Monitoring. Because CITs used in retirement plans are subject to ERISA, plan fiduciaries must demonstrate that their selection and retention of a CIT investment option satisfies ERISA's prudent expert standard. Operations and compliance teams support this obligation by maintaining documentation of the due diligence process for each CIT option, including periodic performance reviews and fee benchmarking against comparable mutual fund alternatives.

This workflow shows that CIT administration combines elements of fund accounting (unit value calculation), trust administration (trustee governance), and retirement plan servicing (recordkeeper unit accounting and participant balance calculation). Operations professionals must understand how each element contributes to the overall system and where their specific responsibilities begin and end.

Real-World Example

A corporate 401(k) plan with $85,000,000 in assets offers participants a large-cap equity investment option. The plan's investment committee reviews the option menu and decides to replace the current mutual fund with a collective investment trust offering an identical investment strategy at a lower total expense — reducing the all-in investment cost from 44 basis points to 28 basis points annually. The plan recordkeeper coordinates with the CIT trustee to execute a participation agreement and establish the plan's account in the CIT. On the transition date, the plan redeems the mutual fund position at that day's NAV and invests the proceeds in the CIT at that day's unit value. Because both transactions settle on the same date, the transition is cash-neutral — but the operations team must confirm settlement timing for both the mutual fund redemption and the CIT investment to ensure no cash gap occurs.

Following the transition, the recordkeeper updates the investment option menu in the plan's participant-facing portal, replacing the mutual fund ticker with the CIT's identifier. Participants who had allocated to the mutual fund option now show balances in the CIT option, calculated at the CIT's unit value. Three months after the transition, the plan's compliance officer requests a due diligence report on the CIT — including audited financial statements, the plan of operation, the trustee's investment management agreement with its sub-advisor, and performance attribution data. The operations team coordinates with the CIT trustee to collect this documentation and prepares a summary for the investment committee's quarterly review, fulfilling the plan's ongoing ERISA fiduciary obligation to monitor the CIT investment option.

This example illustrates how CIT transitions work operationally and why the due diligence burden differs from mutual fund monitoring. In the mutual fund context, the SEC prospectus, annual report, and publicly filed holdings provide standardized disclosure that plan fiduciaries can access without requesting documents from the fund. In the CIT context, the plan must proactively request documentation from the trustee and must actively manage the due diligence process — a distinction that creates ongoing operational responsibility for plans using CIT investment options.

Common Mistakes

Mistake 1: Processing CIT Transactions Through Mutual Fund Clearing Infrastructure

CIT transactions between a retirement plan and the CIT trustee are not processed through the NSCC mutual fund clearing network. Attempting to route CIT purchase and redemption instructions through mutual fund processing systems creates settlement failures and reconciliation breaks. CIT transactions must be processed through the direct arrangement between the plan recordkeeper and the CIT trustee, using the protocols specified in the participation agreement and the trustee's operational procedures.

Mistake 2: Assuming CIT Participants Have Direct Legal Rights Against the Trust

Individual retirement plan participants do not have a direct legal relationship with the CIT or its trustee. Their interest in the CIT is mediated through the retirement plan — the plan invests in the CIT, and the participant holds units of the plan's account balance. Operations staff who treat CIT participation as equivalent to individual mutual fund shareholder ownership — routing participant complaints to the CIT trustee, or processing individual participant transactions as direct CIT investments — misunderstand the structure and create servicing errors that must be corrected through the plan recordkeeper.

Mistake 3: Failing to Review the Trust Instrument Before Processing Trust Account Transactions

In common law trust accounts, the trust instrument defines what the trustee is and is not authorized to do. A trustee who processes an investment or distribution that is not permitted under the trust instrument — even at the apparent request of a beneficiary — may breach their fiduciary duty. Operations staff processing transactions in trust accounts must verify that any material action is consistent with the trust document before execution, particularly for distributions, investment changes, or transactions involving non-standard assets.

Mistake 4: Neglecting ERISA Due Diligence Requirements for CIT Selections

Plan fiduciaries who select CIT options for a retirement plan must satisfy ERISA's prudent expert standard — the same standard that applies to mutual fund selection. Because CITs do not file public disclosures with the SEC, the due diligence documentation must be actively collected from the CIT trustee and maintained in the plan's compliance records. Operations teams that do not establish a systematic process for CIT due diligence documentation put the plan's fiduciaries at risk of regulatory findings for inadequate investment monitoring.

Mistake 5: Confusing Unit Value with NAV in Client Reporting

CITs use "unit value" rather than "net asset value" as their pricing metric, and the terminology is not interchangeable in a regulatory or disclosure context. Client-facing or plan-level reports that refer to a CIT's "NAV" may create confusion or technical inaccuracies. Operations teams should use the correct terminology in all CIT-related reporting and documentation, and should also be prepared to explain the functional equivalence of unit value and NAV to clients or plan participants who are unfamiliar with the CIT structure.

Practical Exercises

Exercise 1: CIT Unit Value Calculation

A collective investment trust holds the following assets at market close: equity securities valued at $142,000,000; fixed income securities valued at $58,000,000; cash of $3,200,000. Accrued liabilities including management fees are $420,000. Total units outstanding are 18,500,000. Calculate the CIT's unit value. A retirement plan wants to invest $1,500,000 in the CIT at this unit value — how many units will the plan receive? After the investment, what is the plan's percentage ownership of the total CIT?

Exercise 2: CIT vs. Mutual Fund Cost Comparison

A $40,000,000 retirement plan is deciding between two large-cap equity investment options: a mutual fund with a total expense ratio of 0.55% (including 0.25% 12b-1 fee) and a CIT offering an identical strategy at 0.22% total expense. Calculate the annual cost difference for the plan. Over a ten-year period assuming 6% annual growth in plan assets, estimate the cumulative cost savings from the CIT option versus the mutual fund. Then identify two factors — beyond cost — that the plan's investment committee should evaluate before deciding to use the CIT.

Exercise 3: Trust Instrument Review Scenario

A bank trust department manages an irrevocable trust with $3,200,000 in assets. The trust document names two beneficiaries: the settlor's spouse receives income for life, and the settlor's children receive the remainder upon the spouse's death. The trustee receives a request from the spouse to liquidate the entire bond portfolio and invest in a single speculative real estate investment. Identify the issues the trustee must evaluate before acting on this request. What provisions of the trust instrument would typically govern investment decisions, and whose interests must be balanced? What documentation should the trustee produce before making any decision?

Exercise 4: CIT Transition Planning

A 401(k) plan is transitioning its mid-cap equity option from a mutual fund to a CIT. The mutual fund currently holds $8,500,000 of plan assets and has a one-business-day settlement on redemptions. The CIT trustee confirms that new plan investments settle on the same day the instruction is received. Design the operational timeline for this transition — including when the mutual fund redemption must be submitted, when the CIT investment instruction must be transmitted, and how to handle the potential one-day cash float between settlement dates. Identify the documentation the operations team must obtain from the CIT trustee before the transition can proceed.

Key Terms

Collective Investment Trust (CIT) — A pooled investment vehicle established by a bank or trust company under banking law, available exclusively to qualified retirement plans, exempt from Investment Company Act registration, and subject to banking regulatory oversight and ERISA requirements.

Trustee — The party who holds legal title to trust assets and manages them for the benefit of the trust's beneficiaries under the terms of the trust instrument, subject to a fiduciary duty of loyalty, prudence, and impartiality.

Unit Value — The per-unit price of a collective investment trust, calculated by dividing total net assets by total units outstanding, functionally equivalent to a mutual fund's NAV but used exclusively in the trust context.

Plan of Operation — The governing document of a CIT, analogous to a mutual fund's prospectus and governing documents, specifying the trust's investment objectives, valuation procedures, fee structure, withdrawal terms, and trustee powers and duties.

Participation Agreement — The contract between a retirement plan and the CIT trustee through which the plan agrees to be bound by the trust's plan of operation and establishes the plan's right to invest in and withdraw from the CIT.

Recordkeeper — The third-party administrator that maintains individual participant account records for a retirement plan, tracking each participant's balance in the plan's investment options including CIT units, and serving as the interface between participants and the plan's investment vehicles.

ERISA (Employee Retirement Income Security Act) — The federal law governing qualified retirement plans that imposes fiduciary duties on plan sponsors and investment managers, requiring prudent selection and monitoring of investment options including CITs, and applying to CITs used in qualified retirement plan contexts.

Common Trust Fund — A pooled investment vehicle established by a bank trust department to collectively invest assets from multiple trust accounts managed by the same institution, exempt from SEC registration and available only to the bank's own trust accounts.

Knowledge Check

Question 1
Why are collective investment trusts exempt from registration under the Investment Company Act of 1940, and what is the primary consequence of this exemption for retirement plans that use them?

A. CITs are exempt because they are organized as partnerships rather than investment companies, and the primary consequence is that they must file annual partnership tax returns rather than investment company financial statements.
B. CITs are exempt because they restrict participation to qualified retirement plans and are regulated under banking law rather than securities law; the primary consequence is that they do not bear the registration, disclosure, and compliance costs of registered funds, enabling them to offer lower expense ratios than comparable mutual funds.
C. CITs are exempt because they are owned entirely by the bank trustee rather than by outside investors, and the primary consequence is that participating plans have no legal rights against the trust and must rely entirely on the trustee's discretion.
D. CITs are exempt because they hold only fixed income securities, which are regulated under the Securities Exchange Act rather than the Investment Company Act, and the primary consequence is that their portfolio disclosures follow bond market rather than equity fund reporting standards.

Question 2
In a retirement plan that offers a CIT investment option, what is the correct understanding of who is the "investor" in the CIT and how does this differ from the plan's individual participants?

A. Individual plan participants are the investors in the CIT, holding units directly in the trust, and the plan is merely the administrative vehicle through which they exercise their investment choices.
B. The retirement plan itself is the investor in the CIT, holding units in the trust; individual participants hold units of the plan's account balance, not a direct legal interest in the CIT, and their relationship is with the plan rather than the trust.
C. The plan's recordkeeper is the investor in the CIT, holding units on behalf of both the plan and its participants, with the recordkeeper bearing fiduciary responsibility for participant outcomes.
D. The plan sponsor is the investor in the CIT, because the sponsor selects and monitors investment options and is therefore the entity with the direct legal relationship with the CIT trustee.

Question 3
What is the primary disclosure disadvantage of CITs compared to mutual funds from the perspective of a plan fiduciary selecting investment options?

A. CITs are required to disclose portfolio holdings only annually, while mutual funds must disclose holdings daily, making it harder for plan fiduciaries to monitor CIT investment activity on an ongoing basis.
B. CITs do not file public disclosures with the SEC, so plan fiduciaries cannot rely on standardized public filings to evaluate CIT options and must instead proactively request documentation directly from the CIT trustee, adding complexity to the due diligence process.
C. CITs are prohibited from disclosing their investment strategies to plan participants, so fiduciaries cannot explain to participants what a CIT option actually invests in, reducing participant engagement with the plan's investment menu.
D. CITs must file disclosures with the Department of Labor rather than the SEC, and the DOL disclosure format is significantly less detailed than the SEC's requirements, providing plan fiduciaries with less useful information than a comparable mutual fund prospectus.

Question 4
A trust instrument for an irrevocable trust specifies that the trustee must balance the income needs of the current income beneficiary against the preservation of principal for the remainder beneficiaries. An income beneficiary requests that the trustee sell all fixed income holdings and invest entirely in high-yield dividend stocks to increase income. What is the trustee's obligation?

A. The trustee must comply with the income beneficiary's request because the trust instrument prioritizes income distributions and the income beneficiary has the primary legal right to direct investment strategy during their lifetime.
B. The trustee must evaluate the request against the trust's governing standard — balancing income generation with principal preservation for remainder beneficiaries — and may decline if the proposed concentration in high-yield stocks creates unreasonable risk to the trust's long-term value at the expense of the remainder beneficiaries.
C. The trustee must seek court approval before making any change to the trust's investment strategy regardless of what is requested, because all investment decisions in an irrevocable trust require judicial oversight to protect all beneficiary classes.
D. The trustee has no discretion in this matter — once a beneficiary formally requests an investment change in writing, the trustee must execute it immediately regardless of the impact on other beneficiaries or the trust's investment objectives.

Question 5
How does a retirement plan's transition from a mutual fund option to a CIT option differ operationally from switching between two mutual funds?

A. There is no operational difference because both transactions are processed through the same NSCC clearing infrastructure using the same settlement timing and transaction codes.
B. Transitioning to a CIT requires executing a participation agreement with the CIT trustee, processing the redemption and investment through a direct trustee arrangement rather than the NSCC network, and updating the recordkeeper's system to reflect CIT unit accounting rather than mutual fund share accounting.
C. Transitioning to a CIT is simpler than switching mutual funds because CIT units are priced continuously throughout the day, allowing the transition to occur at exact market value rather than waiting for end-of-day NAV calculation.
D. The transition requires SEC approval because moving plan assets from a registered mutual fund to an unregistered CIT constitutes a change in the investment's regulatory classification that must be reviewed and authorized by the fund's regulator.

Lesson Summary

Looking Ahead

With the full range of pooled investment vehicle types established — mutual funds, ETFs, private equity funds, hedge funds, and trust-based collective vehicles — Lesson 6.6 examines in depth how funds are valued through the net asset value calculation process. The lesson covers the full cycle of fund accounting: pricing inputs, valuation methodologies for different asset types, the mechanics of NAV calculation across fund types, and the operational controls that ensure pricing accuracy. This deeper treatment of fund accounting builds directly on the structural knowledge of all five vehicle types covered in Lessons 6.1 through 6.5.

Study Support

Practical Application

By the end of this lesson, students should be able to describe the trust legal structure and explain the trustee and beneficiary roles; calculate CIT unit values and explain how they differ from mutual fund NAV in regulatory and disclosure terms; explain why plan participants are not direct investors in a CIT and describe the recordkeeper's role in mediating that relationship; identify the due diligence obligations that distinguish CIT selection from mutual fund selection under ERISA; describe how CIT transactions are processed operationally and why they require different workflows than mutual fund transactions; and explain how trust instruments govern trustee authority in common law trust accounts and why they must be reviewed before material account transactions are executed.

Next Lesson

Lesson 6.6: Fund Administration and NAV Calculation

Study how funds are valued through the net asset value calculation process, including pricing inputs, valuation methodologies for different asset types, and the operational controls that ensure pricing accuracy across fund structures.

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