3(21), 3(38) or DIY?

Let’s just put it on the table…  As a business owner and plan sponsor, you are a fiduciary to your retirement plan.  Plain & Simple.  You have a responsibility to manage your plan to the best interest of the participants.   Plan Sponsors have fiduciary responsibilities and obligations under the Employee Retirement Income Security Act (ERISA), and Fiduciaries are subject to standards of conduct and have important responsibilities that include:

  • Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them.
  • Carrying out their duties prudently.
  • Following the plan documents (unless inconsistent with ERISA).
  • Diversifying plan investments.
  • Paying only reasonable plan expenses.

Acting prudently is one of the fiduciary’s central responsibilities under ERISA and requires expertise in a variety of areas, including investments. If a plan fiduciary lacks the time or expertise to select and diversify plan investments, it may be prudent to hire someone with professional knowledge to assist in fulfilling your fiduciary responsibilities.  


The best example I have to help understand the investment fiduciary roles within a 401k plan is to compare the various roles to driving a car.  A 401k road trip if you will.  It you are heading out on the highway you have several different options. 

1.     Go it Alone.

If you are taking a road trip all by yourself, then you are in the car alone, maintain complete autonomy and are fully responsibility for not only driving the car, but choosing the right road and navigating turns.   If something goes wrong, you face the consequences alone.

If you are not working with retirement plan specialist that acts as a fiduciary to your plan, then this is where you are.  You are fully responsible for management of your plan, including:  selecting and monitoring the fund line-up, complying with regulations, and educating your participants. 

2.     The Co-pilot

Don’t want to drive alone?  You want some help and company for the journey, then consider a 3(21) investment advisor.  In our road trip illustration, the 3(21) sits in the front seat with you and helps you navigate to your destination.  The 3(21) provides advice on when and where to turn, can you help watch for road signs and dangerous situations, but ultimately is not responsible actually steering the car?  Why?  While the 3(21) is in the front seat with you and shares in the pain if disaster strikes, you are still sitting in the driver’s seat and making the final decisions.

The 3(21) Investment advisor

  • A 3(21) investment advisor provides customized investment recommendations to the plan and can provide general financial planning and asset allocation recommendations to participants to help them achieve their retirement goals.
  • Typical services include selecting plan investments and presenting them to you or the plan committee on a regular basis.
  • You still maintain the control to decide which investments to include as options for participants.

3.     The Chauffeur

A copilot sounds better than driving alone, but is there a way to outsource the driving to someone else?  Yes, choose a 3(38) investment manager.  In this situation, you are still in the car, headed to your destination, but you sit in the back seat.  The 3(38) is now in charge of choosing the right road, making the turns, and avoiding danger.  You are no longer making the day-to-day decisions and have placed yourself in the capable hands of your chauffeur. 

The 3(38) Investment Manager

  • A 3(38) investment manager has discretion and control over the plan’s assets and management.
  • You can delegate the significant responsibility (and liability) of selecting, monitoring, and replacing of investments to the 3(38) investment manager.
  • A 3(38) investment manager assumes legal responsibility and liability for individual investments selected, allowing you to better manage and mitigate your fiduciary risk.

Does a 3(38) absolve you from all risk?  No, you still responsible for hiring the best investment manager (chauffeur).

So what kind of plan sponsor (road tripper) are you?  Engaging an investment professional could help mitigate your fiduciary liability.

If you don’t what to do-it-yourself, then engage a Plan Consultant, knowledgeable about fiduciary responsibilities under ERISA, that can assist you with prudently selecting investments offered to your participants or select a suitable investment manager. In addition to offering investment advice, a retirement plan consultant can provide support with other fiduciary responsibilities such as reviewing service provider disclosures and expenses, providing periodic benchmarking of fees and services for reasonableness, and documenting results in a fiduciary file.

Look for retirement plan specialist to support your fiduciary duties and help implement best practices.  At Six8 Advisors, our conversations with prospective clients usually include the following questions: 

  • What do you know about your obligations to the plan and how are handling your responsibilities? 
  • Do you know what your responsibilities are?

  • Do you know if your fees and services are reasonable and prudent?

  • Is your current “advisor” helping you manage the plan

Give us a call.  Let’s start a conversation today.