In America, retirement support is roughly divided into two parts:
- Pretty much everybody has access to the Social Security system, which provides basic support when you get old or if you become disabled and cannot work. Related to Social Security is Medicare, with similar goals and restrictions.
- A substantial, but not complete, section of the population also has access to individual retirement accounts, which are intended to provide the bulk of your retirement support.
Put more briefly, retirement support is pretty much up to you.
Your primary tool for providing for your own retirement is, usually, your company's 401K plan, which gives you tax-advantaged access to investments, and can be as good or bad as your company wants it to be.
Some companies have very good 401K plans (I'm lucky enough to work at one such company), while others have pretty bad ones, frankly. Your only choices in this area are to try to encourage your company to have the best plan it can, and to consider your company's plan as part of your considerations when you choose where to work.
But then, once you have access to a company-provided 401K plan, you still have lots of work to do, as modern 401K plans are fiendishly complicated.
And they, periodically, send you notices like this:
The new investment options are collective investment trusts (CITs) or “commingled pools.” The commingled pools will offer you similar investment strategy and risk as the mutual funds they replaced, but the expenses will be lower.
Like mutual funds, a CIT combines the money of many investors who own a share of the pool and/or trust. A fund manager invests assets on behalf of all shareholders in accordance with the pool’s stated investment objectives.
Unlike a mutual fund, a CIT is available to investors only through their workplace savings plans. Because they are not publicly traded, some information (e.g., ticker symbols, CUSIP numbers, and Morningstar ratings) is not available. A CIT is not registered with the Securities and Exchange Commission (SEC). It is generally governed by state banking laws and by federal agencies, such as the Internal Revenue Service and the Department of Labor.
Maybe you go somewhere else to learn about CITs, and you find a little bit more information:
CITs were first introduced in 1927. Early versions of CITs required investor purchases and withdrawals to be processed manually and were valued infrequently, typically only once per calendar quarter, providing investors little access to portfolio and performance data. For this reason, the early adopters of CITs were defined benefit plans.
But starting in 2000, CITs began operating in ways that many believed were more comparable to mutual funds, providing daily valuation and standardized transaction processing, which greatly increased adoption by defined contribution plans. Then, in 2006, the Pension Protection Act provided for a new default investment election for unallocated 401(k) participant assets. These Qualified Default Investment Alternatives (QDIAs) include certain types of “approved” investment strategies and may take the form of managed accounts, target risk funds and target date funds. Many target date funds—the most widely adopted QDIA—are implemented as CITs, and as their assets have grown, so have the assets of CITs generally. Recently, CIT coverage by database vendors such as Morningstar has increased as well, providing additional transparency and reporting capabilities.
CITs have become a popular alternative to mutual funds within qualified retirement plans. Since 2012, CIT use has grown by 56% within DC plans, while the usage of mutual funds has decreased1—a trend that we expect to continue.
Basically, the fact that my company's plan now offers me new investment options which have lower expenses is a Good Thing, but every time I try to learn enough about finance to understand what the heck all these notices and documents are trying to tell me, I feel overwhelmed by the abstraction and complexity of it all.
And, as a mathematician and software engineer, I'm actually pretty good with abstraction and complexity, I think.
Oh, well, on we go.