Difference between 3(16), 3(38), 3(21) fiduciary

Since 1974, the Employee Retirement Income Security Act (ERISA) has established guidelines that plan sponsors and administrators must follow in order to act in the best interest of the plan and its participants. If you have an employer-sponsored 401(k), then ERISA covers your plan. 

Some plan service providers offer fiduciary services to 401(k) plans, with different duties and liabilities: 3(16), 3(21), and 3(38).

Understanding ERISA fiduciary roles: 3(21), 3(38), and 3(16) explained

The “3” in 3(16), 3(21), and 3(38) comes from Section 3 of ERISA, which contains the rules and defines fiduciary roles into three separate sections.

Section 3(21) of ERISA defines a fiduciary as an individual who exercises any discretionary authority or control regarding the management of an employee benefit plan or the disposition of its assets. 3(21) also refers to an individual who renders investment advice to the plan in exchange for compensation The definition of a 3(21) fiduciary also includes the plan trustee and plan administrator as further defined below.

Section 3(38) of ERISA applies to an investment fiduciary with discretionary controls of the plan’s assets. This means that a 3(38) can select, monitor and replace investments for the plan. While a 3(21) investment fiduciary has to wait for approval for such decisions, a 3(38) can go ahead and make those decisions on behalf of the client. This is why a 3(38) fiduciary must be a registered investment adviser (RIA) under federal or state law, a bank, or an insurance company.

Section 3(16) of ERISA establishes that the fiduciary has a responsibility to ensure the plan is created and managed according to ERISA requirements. If there is no named administrator, the plan sponsor takes on this role automatically. The 3(16) administrator typically handles reporting and disclosure requirements, summary plan descriptions, participant disclosures, and the plan’s Form 5500 filings.

Comparing fiduciary roles: Key similarities and differences

3(21) and 3(38) investment fiduciaries are similar in that the focus is on investment recommendations. A 3(21) investment advisor is a co-fiduciary and can provide investment recommendations, but he or she has to wait for approval from the client to execute those investments. On the other hand, a 3(38) investment manager is able to make investment decisions on behalf of the client.

A 3(16) fiduciary focuses on the plan administrative functions, including meeting ERISA reporting requirements, disclosure requirements, filing the correct paperwork with ERISA and making the required disclosures to plan participants.

Strategic advantages of hiring 3(16), 3(21), and 3(38) fiduciaries

There are three key benefits: improved compliance, lower cost, and the ability to focus on your business.

1. Improved compliance

By hiring a 3(21) and 3(38) investment fiduciary, a plan administrator can share his or her fiduciary responsibilities with the investment advisor or investment manager. Hiring the services of a professional investment professional helps the plan administrator to demonstrate that he or she is meeting the fiduciary responsibilities set by the U.S. Department of Labor and acting in the interest of plan participants.

Keep in mind that hiring a 3(21) or 3(38) doesn’t mean that the plan administrator can just wash his or her hands from involvement. ERISA requires that the plan administrator carefully selects and monitors the hired investment advisor or manager.

Hiring a 3(16) plan administrator helps a business owner reduce its fiduciary liability on the administrative side.

2. Lower cost

The DIY attitude of owners of small- and mid-sized businesses is essential to run lean, efficient organizations. While business owners are great at wearing many hats, it doesn’t necessarily mean that they’re doing things cost-efficiently.

One major benefit of hiring a 401(k) fiduciary is that you’re hiring a professional whose main job is to advise and manage 401(k) plans. This can translate into cost savings in operating and maintaining the 401(k) plan. Monitoring your 401(k) costs is not only important to fulfill your fiduciary obligations, but also to help minimize annual investment fees or expenses which could cost thousands of dollars in forgone retirement savings for your employees down the road.

3. Ability to focus on your business

Offloading administrative tasks and necessary legwork to make informed investment decisions liberates your time to focus on growing your business. By working with investment professionals and third-party administrators you can free up your time and help create more value for your company.

What type of fiduciaries are businesses hiring?

In its 2018 Survey of profit-sharing and 401(k) Plans, the Plan Sponsor Council of America (PSCA) found that 70% of defined contribution plan sponsors retained an independent investment advisor to assist with fiduciary responsibilities.

In a survey of 590 defined contribution plans, the PSCA found that:

• 36% of plans used a 3(21) fiduciary
• 20% of plans used a 3(38) fiduciary
• 14% of plans used a 3(16) fiduciary

According to 2018 data from the PSCA: “More than one-third of plan sponsor respondents offer investment advice to participants. Advice was offered by a registered investment advisor (30.8%), a certified financial planner (28.8%), or a third-party web-based provider (20.2%).”

How Human Interest supports your fiduciary obligations

As an employer offering a retirement plan, you have fiduciary responsibilities covered under the standards of conduct covered under ERISA. As a business owner, you want to take care of your employees, and that includes providing access to quality investment education and/or advice and low cost. Opting to hire a service provider to share your fiduciary responsibilities can help you manage your fiduciary risk.

Human Interest provides 3(21) investment advisory and 3(38) investment management services to help with your investment decisions.¹ Human Interest also provides full 401(k) plan compliance with testing, IRS Form 5500 filing, IRS-approved plan documents, audit package, participant disclosures, and recordkeeping services.

At Human Interest we support thousands of small and medium-sized companies who are saving for their future. Schedule a time to chat, and feel free to ask us anything.

Frequently asked questions about fiduciary roles

What is the primary difference between an investment advisor and an investment manager under ERISA?

ERISA Section 3(21) defines a 3(21) investment advisor as one who is able to provide recommendations but requires approval from the plan sponsor or committee before executing any changes. Conversely, an ERISA Section 3(38) investment manager maintains discretionary authority, meaning the manager can select, monitor, and replace investments without seeking prior client approval for each transaction.

What specific administrative duties fall under an ERISA 3(16) fiduciary?

An ERISA 3(16) fiduciary serves as the named plan administrator and is responsible for the day-to-day management of the retirement plan. Core duties typically include managing reporting and disclosure requirements, providing summary plan descriptions, overseeing participant disclosures, and handling the filing of the plan’s Form 5500.

Does hiring a 3(38) investment manager eliminate a plan sponsor's fiduciary liability?

Hiring a 3(38) investment manager can allow for plan fiduciaries to delegate specific duties for selecting, managing, and monitoring plan investments. While this shifts the primary fiduciary responsibility to the 3(38) manager, it does not completely alleviate the plan sponsor of all liability. ERISA requires that the plan sponsor or committee still exercise due diligence in the selection and ongoing monitoring of the investment manager and plan service providers.

How do 3(16) fiduciaries assist with plan compliance?

A 3(16) fiduciary can help maintain plan compliance by helping to verify that the retirement plan is created and managed according to ERISA requirements. If a business does not name a specific 3(16) administrator, the plan sponsor automatically assumes these high-risk administrative and legal responsibilities.

What are the common adoption rates for different fiduciary services among plan sponsors?

According to 2025 industry benchmarks from the Plan Sponsor Council of America (PSCA) and the Plan Sponsor Attitudes Survey, approximately 92% of plan sponsors now utilize an independent investment advisor or consultant. Among these plans, approximately 38% use a 3(21) fiduciary, 25% utilize a 3(38) fiduciary, and 63% engage or would prefer a 3(16) administrative fiduciary.

Note on Fiduciary Obligation: It is important to be aware that ERISA and the Department of Labor (DOL) expect and require plan fiduciaries to act with the care, skill, and diligence of a prudent person who is familiar with such matters. ERISA’s “Prudent Expert” standard means that if a plan sponsor does not have the expertise to prudently manage or evaluate plan investments, they must hire professional expertise to ensure they are acting in the best interest of the plan participants.

* Applies to all transaction types. For non-rollover distributions, shipping and handling fees may apply to requests for check issuance and delivery.

This content has been prepared for informational purposes only, and should not be construed as tax, legal, or individualized investment advice. Human Interest Inc. does not provide tax, legal, or individualized investment advice. Consult an appropriate professional regarding your situation. The views expressed are subject to change. In the event third-party data and/or statistics are used, they have been obtained from sources believed to be reliable; however, we cannot guarantee their accuracy or completeness.