Choosing the Right Fiduciary Support for Your Business’s Retirement Plan: 3(21) vs. 3(38) 

As a business owner, managing your company’s retirement plan can feel like a balancing act. You want to offer a quality retirement plan to your employees while ensuring it meets regulatory requirements and stays competitive. One of the most important decisions you’ll face is selecting the right fiduciary support for your plan.

The two primary types of fiduciary investment advisors under ERISA (Employee Retirement Income Security Act) are 3(21) advisors and 3(38) investment managers. While both play key roles, they differ significantly in terms of responsibility, liability, and cost. Understanding these differences will help you make an informed decision about which option best suits your business and your employees’ needs.

What Is a 3(38) Investment Manager?

A 3(38) investment manager takes on a more comprehensive role with full discretionary control over the plan’s investments. This means they are responsible for:

• Selecting and managing the plan’s investment options
• Replacing underperforming investments without requiring sponsor approval
• Handling all investment-related decisions for the plan

With a 3(38) investment manager, you significantly reduce your fiduciary liability. While the plan sponsor still has the responsibility of selecting and monitoring the 3(38) fiduciary, the investment decisions are entirely managed by the professional team, relieving business owners from much of the burden.

This option is ideal for businesses that want to delegate investment decisions to experts while minimizing liability and administrative effort.

Why a 3(38) Fiduciary May Cost More, But Offers Greater Value

It’s well-known that 3(38) fiduciaries typically come with a higher price tag. However, that cost is often offset by the benefits of working with a professional investment manager. Here’s why it’s worth the investment:

1. Reduced Fiduciary Risk

With a 3(38) investment manager, you’re no longer responsible for selecting or monitoring the investments—this shifts liability to the 3(38) fiduciary. This reduces the risk of legal and regulatory issues related to improper investment management.

2. Time Savings & Administrative Relief

Managing a retirement plan’s investments can be time-consuming and requires specialized knowledge. A 3(38) fiduciary reduces your administrative burden by taking full control of investment decisions, freeing you up to focus on running your business.

3. Proactive Investment Management

Unlike a 3(21) advisor, who only suggests changes, a 3(38) investment manager can make immediate adjustments to the investment lineup. This ensures that underperforming funds are quickly replaced, and the plan stays aligned with market conditions and best practices.

4. Increased Employee Confidence

Employees place their financial security in the hands of their company’s retirement plan. With a professional 3(38) investment manager overseeing the fund lineup, employees can feel more confident knowing their retirement savings are being managed by experts rather than business owners with limited investment expertise.

Which Fiduciary Option Is Right for Your Business?

Choosing between a 3(21) and 3(38) advisor ultimately depends on your company’s goals and resources. Here’s a quick breakdown:

Feature	3(21) Co-Fiduciary Advisor	3(38) Investment Manager
Decision-Making Authority	Plan sponsor retains final say	Advisor has full discretion
Fiduciary Liability	Shared with the plan sponsor	Shifted to the 3(38) fiduciary
Investment Monitoring	Advisor suggests, but sponsor decides	Advisor manages and implements
Administrative Burden	Higher	Lower
Cost	Lower	Higher

If you prefer to maintain control and are comfortable with the responsibilities of plan management, a 3(21) advisor might be right for you. However, if you want to reduce liability, save time, and ensure professional investment management, a 3(38) fiduciary can provide a better overall experience—despite the higher cost.

Final Thoughts

Choosing the right fiduciary support for your business’s retirement plan is an important decision that can impact both your company and employees. While a 3(38) investment manager offers greater protection and efficiency, a 3(21) advisor might be sufficient for businesses that want to retain control and manage the plan more directly. Ultimately, the decision depends on your goals and what will work best for both you and your employees.

Ready to explore fiduciary options for your retirement plan? Connect with a plan specialist to find the best fit for your business. Let’s make sure your employees’ futures are in good hands.