3(38) fiduciary

When it comes to managing retirement plans, a 3(38) fiduciary plays a crucial role in investment oversight and risk management. This specialized investment manager takes on complete discretionary authority and responsibility for selecting, monitoring, and managing investment options within a 401(k) or other retirement plans. Under the Employee Retirement Income Security Act (ERISA), this designation provides significant protection for plan sponsors by transferring most investment-related liability to the 3(38) fiduciary.

How does a 3(38) fiduciary work with 401(k) plans?

In the context of 401(k) plans, a 3(38) fiduciary operates with full autonomy over investment decisions. This arrangement removes the burden from plan sponsors while ensuring a structured approach to investment management. The 3(38) fiduciary maintains complete control over adding, removing, or replacing investment options without requiring prior approval from the plan sponsor.

One of the key responsibilities of a 3(38) fiduciary is conducting regular monitoring of the investment lineup. This ongoing oversight ensures that the plan's investments remain aligned with the plan’s Investment Policy Statement (IPS), if applicable. 

What makes a 3(38) fiduciary different from other fiduciary services?

Understanding the distinction between a 3(38) fiduciary from other fiduciary services is essential for plan sponsors. Unlike 3(21) fiduciaries, who only provide investment recommendations, 3(38) fiduciaries assume full discretionary control over investment decisions. This higher level of authority comes with a formal written acknowledgment of their role and acceptance of legal responsibility for investment decisions.

However, it's important to note that plan sponsors retain some responsibility even when working with a 3(38) fiduciary. While the investment decisions are delegated, sponsors must still exercise prudence in selecting and monitoring the 3(38) fiduciary's performance. This ongoing oversight ensures that the fiduciary continues to act in the best interest of plan participants while fulfilling their professional obligations.

Why should employers consider hiring a 3(38) fiduciary?

For many employers, particularly small to mid-sized businesses, hiring a 3(38) fiduciary offers several compelling advantages. First and foremost, this arrangement provides the highest level of fiduciary protection available under ERISA with respect to investment responsibilities. By delegating investment responsibilities to a qualified 3(38) fiduciary, plan sponsors effectively transfer significant investment-related liability to the 3(38) fiduciary.

The 3(38) arrangement may also streamline plan administration by eliminating the need for sponsors to research or approve investment changes, allowing them to focus on other aspects of business operations while ensuring their retirement plan receives professional investment oversight.

Human Interest provides 3(38) investment management services to help with your investment decisions.¹ 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.

1. Investment advisory services are offered through Human Interest Advisors LLC, a Registered Investment Adviser and subsidiary of Human Interest Inc. An investment advisory fee is paid to Human Interest Advisors (HIA) of 0.01% of plan assets and a separate fee for recordkeeping services and custody-related expenses is paid to Human Interest Inc. (HII) of 0.05% of plan assets. Both fees are deducted on a monthly basis from the employee's account according to the HII and HIA Terms of Service. All prices are exclusive of applicable taxes. If the plan sponsor elects to hire an external investment advisor, the plan sponsor will pay such advisor as agreed between the plan sponsor and advisor. For more information, please see our pricing page. Similar services may be available at a lower cost from other vendors.