3(21) & 3(38)

3(21) Investment Fiduciary:  is an Investment Advisor who provides investment recommendations to the plan sponsor/trustee. The plan sponsor/trustee retains ultimate decision-making authority for the investments and may accept or reject the recommendations. Both share the fiduciary responsibility.

3(38) Investment Manager: is special type of fiduciary appointed to have full discretionary authority and control to make the actual investment decisions. The manager may select, monitor, remove and replace the investment options offered under the plan. Only certain types of financial institutions may be appointed as a 3(38) investment manager. The 3(38) must be a registered investment adviser, bank or insurance company and must acknowledge its fiduciary status in writing. The Plan Sponsor and all other plan fiduciaries are relieved of all fiduciary responsibility for the investment decisions made by the investment manager. The plan sponsor does have a continuing responsibility to monitor whether the investment manager is actually performing the services but need not second guess its investment decisions.

Faced with financial market volatility, rising interest rates, regulatory scrutiny, and plan-related litigation activity on the rise, many Plan Sponsors are looking towards professionals to manage their plans. 

Engaging a professional to provide investment advice has been common for some time among plans subject to the Employee Retirement Income Security Act of 1974 (ERISA).  A more recent trend for defined contribution plan sponsors is to engage advisors to manage the investments for them.  An ERISA § 3(38) arrangement represents the highest level of investment liability transfer possible under ERISA, but that doesn’t mean a plan sponsor has eliminated all investment-related fiduciary duties. While engaging a 3(38) lessens your investment-related responsibilities and risk, it doesn’t absolve Plan Trustees completely of all investment fiduciary responsibilities. The process of selecting and engaging a 3(38) itself is a fiduciary responsibility.

We have the capacity to serve our clients as either 3(21) Advisors or 3(38) Managers. Contact one of our 3(21) or 3(38) investment advisors today to discuss which option is most appropriate for your Plan:  877-595-0833 or use our form below.


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