Most business owners learn this the uncomfortable way: sponsoring a retirement plan makes you an ERISA fiduciary, and that liability is personal — not corporate. If the plan's investment menu is imprudent or its fees are unreasonable, participants can bring claims against the people who ran the plan, and the litigation of the last decade shows they do. That risk doesn't require bad intent. It only requires a menu nobody was formally responsible for watching.
Which raises the practical question: who, exactly, is responsible for your plan's investments — in writing?
3(21) versus 3(38): advice versus responsibility
The numbers come from sections of ERISA, and the distinction is simpler than it sounds.
- A 3(21) fiduciary advises. They recommend funds, provide monitoring reports, and share co-fiduciary status. But you decide — and because you decide, the responsibility for each selection stays with you. The advisor hands you a report; you hold the outcome.
- A 3(38) investment manager decides. You formally delegate the selection, monitoring, and replacement of the plan's investments. The 3(38) takes on that discretion — and with it, the fiduciary responsibility for those investment decisions.
With a 3(38) in place, your duty narrows to something a business owner can actually perform: prudently choosing the professional, and periodically confirming they're doing the job. That duty never goes away — no arrangement removes all fiduciary responsibility, and anyone who claims otherwise should worry you. But there's a real difference between being responsible for every fund on the menu and being responsible for having hired a qualified manager.
You can delegate the decisions. You can't delegate them to nobody.
What the job looks like when it's done properly
A 3(38) engagement isn't a title on a contract — it's a documented, repeating process. Done right, it includes:
- An investment policy statement that states, in writing, how funds are chosen, measured, and replaced — so decisions are governed by criteria, not memory.
- Ongoing monitoring with a paper trail. Regular reviews against the policy, documented — because for a fiduciary, an undocumented process is legally close to no process.
- Independent fee benchmarking. Recordkeeping, fund expenses, and advisory costs compared against market data on a schedule. "Reasonable fees" is a fiduciary requirement, and reasonableness has to be demonstrated, not assumed.
- Trustee meetings with minutes. The governance rhythm that proves the plan is being run deliberately.
- Participant education. Because the plan exists to actually retire your people someday, not just to survive an audit.
The question to ask your current provider
Send one email: "Are you serving our plan as a 3(38) investment manager or a 3(21) advisor — and can you point to where our agreement says so?" If the answer is fuzzy, the responsibility is currently sitting with you, whether or not anyone told you.
We serve as a 3(38) investment fiduciary for employer plans, and we're glad to walk through what your current arrangement actually says — it's a short conversation, and plan sponsors are usually surprised by the answer.
Educational only — not investment, tax, or legal advice. Every situation is different; the right answer depends on the numbers, and that's what the strategy session is for. Investing involves risk, including possible loss of principal.