COMPLEX INVESTMENT PRODUCTS
If your pension plan (defined benefit plan or 401(k) plan) is invested in a Collective Investment Trust, there is a high likelihood that your investments include complex investment products.
The key for pension plan participants is, of course, that you understand the assets in your plan, together with their risks–especially the complex products that may be embedded in your plan without your knowledge. This is essential for a participant to exert appropriate influence over the direction of plan investments.

Complex products (investments) are defined by FINRA as “any product with multiple features that affect its investment returns differently under various scenarios is potentially complex. This is particularly true if it would be unreasonable to expect an average retail investor to discern the existence of these features and to understand the basic manner in which these features interact to produce an investment return.”
The definition of “complex products” overlaps with the definition of “alternative investments“). Both definitions are aimed at the same basic problem–investment assets whose values are opaque, and that react to normal market forces in ways that are difficult to understand–particularly for retail investors and pension plan participants. See FAQ.
FAQ
COMPLEX PRODUCTS
What are examples of complex products?
A non-exclusive list of complex products includes:
— Asset-backed securities that are secured by a pool of collateral such as mortgages, payments from consumer credit cards or rent payments.
— Products that include an embedded derivative component that may be difficult to understand.
— Products whose repayment of principal or payment of yield depends upon an OTC reference asset, such that information about the performance of the reference asset is not readily available.
— Products that have different stated returns throughout the lifetime of the product.
— Products under which the investor might incur a capital loss as a result of the fall in the value of the reference asset without being able to participate in an increase in its value.
— Products in which a change in the performance of the reference asset can have a disproportionate impact on the repayment of capital or on the payment of return.
— Products with contingencies in gains or losses, particularly those that depend upon multiple mechanisms, such as the simultaneous occurrence of several conditions across different asset classes.
— Structured notes.
— Investments tied to the performance of markets that may not be well understood by many investors.
— Products with principal protection that is conditional or partial, or that can be withdrawn by the product sponsor upon the occurrence of certain events.
— Product structures that can lead to performance that is significantly different from what an investor may expect, such as products with leveraged returns that are reset daily.
— Products with complicated limits or formulas for the calculation of investor gains.
(See, FINRA explanation page: https://www.finra.org/rules-guidance/notices/12-03 for detailed discussion.)
Why might complex products be in my pension plan?
Complex products may offer higher returns in a stable or growing economy–but not so much in a volatile or falling economy. So its critical to understand what your pension plan is invested in at any point in a market cycle.
Complex products are intended for sophisticated investors and institutions. The investment manager or sponsor of your plan is such a sophisticated investor (even if you are likely not). Therefore, the investment manager is expected to understand these complex products and protect your interests accordingly.
Who is responsible to plan partipants for investments in complex products?
The plan fiduciary is accountable to you for overseeing all investments in your plan–even the ones that are difficult for an average person to understand, such as complex products.