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Retirement Doctor: The Difference Between 3(21) and 3(38) Fiduciary Advisors

Jul 11, 2019 11:20:43 AM / by Mike Rogers



Is it surprising or scary that too many 401(k) advisors are still unfamiliar with ERISA terms like 3(38) and 3(21)? Probably both. In short the difference depends on how much liability you want to mitigate.

3(21) Co-Fiduciary – “Help me”

  • Shared fiduciary liability between the client and advisor for the plan investments.
  • The 3(21) advisor recommends the selection and replacement of plan investment options, but the plan sponsor must approve changes.
  • 3(21) advisors are suitable for plan sponsors that are comfortable assuming investment fiduciary liability.
3(38) Investment Fiduciary – “Do it for me”
  • Majority of investment responsibilities are lifted from the plan sponsor and assumed by the 3(38) advisor.
  • The 3(38) advisor is responsible for the investment selection, monitoring and replacement of plan options, and the plan sponsor is informed before any changes are made.
  • 3(38) advisors are suitable for plan sponsors that don’t have the time and/or do not want to be responsible for the plan’s investments.
  • We are starting to see more employers embrace the 3(38) option.

While involving a 3(38) ERISA manager means the sponsor can outsource their fiduciary responsibility, there’s a catch, which resides in the wording of “…if an investment manager is properly appointed.” Plan sponsors must approve the 3(38) investment manager, and properly document the due diligence involved in doing so, something that too many plan sponsors fail to realize.

Referring to a 2017 survey from Charles Schwab, 52% of participants indicated they don’t have the time, interest, or knowledge to manage their 401(k) portfolio. Additionally, 56% indicated they either aren’t aware or don’t review plan-related education material.

So, which type of advisor is best for your plan? It is important that plan sponsors review their relationship with their advisor and determine they are handling the plan appropriately, depending on the capacity in which they are involved.

For help reviewing your advisor relationship and better assessing your options and liability exposure, as always, contact our knowledgeable advisors at Filice Retirement Services. 

Topics: 401(k) plan, 401(k) plan sponsor, 401(k), best practices, ERISA, Audit

Mike Rogers

Written by Mike Rogers

Mike is an industry veteran with 30 years of experience in every aspect of retirement planning, including registered investment advisory, third party administration, and record keeping. His list of credentials is as extensive as it is impressive: Qualified Pension Administrator (QPA), Qualified 401K Administrator (QKA), Certified Pension Consultant (CPC), Qualified Pension Financial Consultant (QPFC), Accredited Investment Fiduciary (AIF®), Tax Exempt and Governmental Plan Consultant (TGPC), Certified Behavioral Finance Analyst (CBFA), Professional Plan Consultant (PPC), Global Fiduciary Strategist (GFS). Mike is also a former member of the Schwab SRT Technologies Advisory Board, Schwab TPA Advisory Board, and Fidelity/IBG Advisory Board.

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