Does Your Retirement Plan Have a 3(38) Investment Manager?

What is a 3(38) Investment Manager?

A 3(38) Investment Manager is an investment fiduciary on a retirement plan as defined by ERISA (Employee Retirement Income Security Act of 1974) section 3(38). The 3(38) is responsible for selecting, managing, monitoring, implementing, and benchmarking the investment offerings of the plan. The 3(38) also has discretionary authority to direct the investment of the funds unless it is a participant-directed plan. The Employer typically acts as an Investment Manager by default, unless another party is explicitly named.

What are the responsibilities of a 3(38) Investment Manager?

The duties are set by the ERISA statute and are enforced by the Department of Labor. They may also have additional duties as set forth in the plan document and/or any agreements in place. Typically, those duties include the following:

1. Create and Manage an Investment Policy Statement (IPS)
2. Prudently select plan investment options
3. Report on investments regularly to the retirement plan’s Trustee
4. Benchmark the investments
5. Replace funds and update model portfolios as needed
6. Hold Investment Committee Meetings
7. Provide education to the participants as it relates to the plan’s investment options

What are the risks of being a 3(38) Investment Manager?

There is a level of risk associated with this role. There have been many lawsuits associated with the responsibility associated with the costs and performance of a 401(K) plan stemming from the fund lineup selected by the 3(38) Investment Manager. If these plans would have been outsourced to a professional firm, the Employers liability would have been mitigated.

Should an Employer Outsource the Role of a 3(38) Investment Manager?

Outsourcing the role of an investment manager can reduce an employer’s work as they will no longer be responsible for researching, selecting, and providing ongoing maintenance for the investments available in the company’s retirement plan. Aside from reducing the time that Trustees have to focus on the investments for their company retirement plan, hiring a 3(38) Investment Manager will help reduce the Trustee’s liability.

At Evensky & Katz Foldes Financial, our team of CERTIFIED FINANCIAL PLANNERS™ will take on the role of acting as a 3(38) Investment Manager and make sure that you have a compliant retirement plan. For more information or if you would like a complimentary analysis of your existing plan, please do not hesitate to contact us.