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3(21) Investment Fiduciaries--Partners in Your Plan

Establishing a qualified retirement plan, like a 401(k), for employees is an important benefit many companies offer. However, it’s a large responsibility, and often plan sponsors don’t completely understand their roles, and the roles of the advisors they hire to help them administer the plan. One area of confusion is the difference between the types of advisors that provide plan services, like 3(21) and 3(38) plan fiduciaries.

Let’s Look at the Numbers

Qualified plans like 401(k)s are defined by rules set out in the Employee Retirement Income Security Act of 1974, or ERISA. ERISA’s Section 3 specifically defines who is responsible for operating an employee benefit plan, and the 21st definition outlines plan fiduciaries. That’s where the term 3(21) investment fiduciary comes from, and those fiduciaries include:

  • Anyone who makes decisions about the plan’s management or its investments, including hiring other plan advisors or selecting investment choices for employees.
  • Anyone who makes decisions about the plan’s administration, including deciding which employees are eligible to become participants or deciding on benefit claims.
  • Anyone who is paid to provide investment advice to the plan.

As the plan’s sponsor, you are ultimately the final decision-maker, even if you’ve delegated responsibilities to other advisors, so you are automatically a 3(21) plan fiduciary. And ERISA also requires that you, as a plan fiduciary, must operate the plan for the exclusive benefit of participants, and that you must act with “care, skill, prudence, and diligence.”

Sharing the Load

That can be a daunting prospect. Many plan sponsors don’t have the expertise they need to administer a 401(k) plan, select investments, and properly document their decisions. That’s why plan sponsors hire 3(21) fiduciaries. A 3(21) plan advisor acts as a co-fiduciary, helping you run the plan and also sharing any liability with other plan fiduciaries, like members of your investment committee and board members. The 3(21) advisor offers you the expertise to effectively manage your plan.

Even with a 3(21) fiduciary partner, the plan sponsor is still primarily responsible for their plan’s investments. Plan sponsors that want to delegate fiduciary responsibility for selecting and managing the plan’s investment options need to hire a 3(38) plan fiduciary, which is a registered investment advisor, bank, or insurance company that has the authority to independently buy, sell, and manage the plan’s investments. A 3(38) plan fiduciary must acknowledge responsibility for the plan in writing. Plan sponsors are still responsible for prudently selecting and monitoring a 3(38) fiduciary, but as long as they do so, they won’t be liable for the acts or omissions of the investment manager with respect to investment decisions.

What Does Your Plan Need?

There’s no simple answer that determines which type of fiduciary is best for a particular plan. Sponsors who want to minimize their fiduciary risk and are comfortable in giving up investment control may want the help of a 3(38) fiduciary. Sponsors who want to keep control over investment decisions and are confident in their risk management may want a 3(21) fiduciary. Whatever your particular needs, FiduciaryFirst can help you. Contact us to schedule a review of your plan and we can work with you to determine the type of plan fiduciary that will serve you and your participants best.

Contact Details

1060 Maitland Center Commons

Suite 360

Maitland, FL 32751

Phone: 866-625-4611

Fax: 407-740-6113



Retirement Plan Consulting Program and other advisory services offered through LPL Financial, a registered investment advisor.

This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice.  Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.  In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.


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