For CFOs & HR Leaders
3(38) vs 3(21): Which Fiduciary Structure Fits Your Plan
The numbers refer to sections of ERISA, and the difference between them is simple: a 3(21) advisor recommends, a 3(38) manager decides. What follows from that is who carries the liability for the plan's investment lineup.
| 3(38) manager | 3(21) advisor | |
|---|---|---|
| Who selects the funds | The advisor, with discretion | The committee, on advice |
| Who signs off on changes | The advisor | The committee |
| Investment decision liability | Sits with the 3(38) manager | Stays with the sponsor |
| Sponsor's remaining duty | Select and monitor the manager | Full prudent process |
| Committee time required | Lower — review and oversight | Higher — decisions each cycle |
| Best suited to | Lean finance/HR teams | Engaged, experienced committees |
What neither structure changes
In both cases the plan sponsor keeps the duty to select the advisor prudently, monitor the relationship, confirm fees are reasonable for the services received, and document all of it. A 3(38) narrows the committee's exposure; it does not end the committee's job.
How we work with committees
Old Slip Capital serves plan sponsors in either capacity from 40 Wall Street in New York. We usually start by reviewing your current service agreement to establish what your existing advisor has actually agreed to be — many sponsors find their provider is neither a 3(21) nor a 3(38) in writing.
Common questions
- What is a 3(38) fiduciary?
- An ERISA 3(38) investment manager has discretion over the plan's investments. It selects, monitors and replaces the funds itself and accepts fiduciary responsibility for those decisions. The sponsor still has the duty to prudently select and monitor the 3(38) manager.
- What is a 3(21) fiduciary?
- An ERISA 3(21) advisor is a co-fiduciary who recommends investments and monitors the menu, while the plan sponsor or committee makes and owns the final decisions. The committee keeps more control and more responsibility.
- Is a 3(38) better than a 3(21)?
- Neither is better in the abstract. A 3(38) suits committees that are thinly staffed, meet infrequently, or want investment liability off their desk. A 3(21) suits committees that want to stay engaged in investment decisions and have the time and expertise to do so. Fee levels are generally similar; the difference is where the decision authority sits.
- Can a plan use a 3(38) for some assets and a 3(21) for others?
- Yes. Some plans delegate the core menu to a 3(38) while keeping company stock, a legacy fund or the QDIA choice under committee control as a 3(21) engagement. The arrangement should be written into the service agreement and reflected in the Investment Policy Statement.
- How do we document the choice?
- Record in the committee minutes why the structure was chosen, the search process used to select the advisor, the fees, and the schedule for reviewing the advisor's performance. That record is what shows a prudent process later.