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Structure & Benefits

Collective Trust Funds (CTFs) also known as commingled funds, or collective investments funds, are pooled investment vehicles organized as trusts and maintained by a bank or a trust company.

CTFs have been around for over 89 years, with the launch of the first CTFs in 1927. In 2000, with the advent of improved technology, trading and availability CTFs began gaining popularity as vehicles for retirement savings. CTFs are used only in IRS qualified defined contribution plans or defined benefit plans.

CTFs are similar to mutual funds in the following ways:
  • Both are pooled investment vehicles, allowing easier access for multiple investors to invest in a single investment strategy based on economies of scale
  • The majority are daily priced and traded, utilizing standardized industry automation, offering investors flexibility for managing and rebalancing their accounts
  • The majority provide frequent performance reporting, giving plan sponsors and consultants access to detailed and timely information

Registration

Although CTFs are generally exempt from registration with the Securities and Exchange Commission (SEC), they are closely regulated under federal banking laws by the Office of the Comptroller of the Currency (OCC). Additionally, CTFs are subject to Employee Retirement Income Security Act (ERISA) and the U.S. Department of Labor (DOL) regulations. CTFs must comply with Internal Revenue Service rules in order to maintain their tax exempt status.

As an ERISA fiduciary, Charles Schwab Bank is required to make CTF investment decisions solely in the interest of participating plans and must follow the fiduciary requirements of ERISA when applicable. This additional level of fiduciary review for CTF investments gives plan participants a layer of oversight that is not required with mutual fund investments.

Investing in CTFs Offers Several Benefits

Low Cost

CTFs are generally offered to retirement plans at a lower cost than a mutual fund using a similar strategy, primarily due to differences in their regulatory environments. This cost savings directly affects the investor by giving them the ability to save more for retirement.

Flexibility

The bank sponsoring and maintaining the CTF generally has flexibility managing investments in its CTFs. This can potentially result in a product that may be able to respond more quickly to client needs and the strategic objectives of the CTFs. For example, for some underlying investments the Charles Schwab Bank CTFs use separate account portfolios. In these cases, the Bank works with the sub-advisors to formulate guidelines and customize the accounts to fit the investment goals of the overall CTF.

Institutional Client Base

CTFs can only be accessed by eligible qualified retirement plans and are not available to individual retail investors. This can lead to a more stable and predictable cash flow environment, which allows the fund to be managed more efficiently. For instance, the manager may be able to maintain a lower cash allocation and put more assets to work in the markets. Also, better cash flow visibility may reduce the risk associated with unexpectedly having to buy or sell underlying securities or other assets.

Who Can Invest in CTFs?

CTFs are only available to eligible retirement plans and their participants. This includes, but may not be limited to, the following qualified defined contribution (DC) and defined benefit (DB) plans generally:

DC
  • 401(k) Plans (except for certain Keogh plans)
  • Governmental 457(b) Plans
  • Profit Sharing Plans
  • Stock Bonus Plans
  • Thrift Plans
  • Money Purchase Plans
  • Target Benefit Plans
  • Taft-Hartley Plans
DB
  • Pension Plans
  • Cash Balance Plans
  • Master Trusts
  • Insurance Company Separate Accounts limited to investment by the above plans
CTFs can typically invest in other CTFs. See the applicable declaration of trust to determine if a plan is eligible to invest in a CTF.