3(21) or 3(38): which fiduciary role do you actually want?

Every retirement plan has fiduciaries, whether or not anyone at the company knows they are one. If you select or monitor the plan's investments, you hold a fiduciary duty to participants, and the standard is not good intentions. It is a process you can document.

Two sections of ERISA describe roles an outside advisor can take. Sponsors are asked to choose between them without much explanation of what changes.

What a 3(21) advisor does

A 3(21) investment advisor is a co-fiduciary. They research funds, build a recommended lineup, monitor it, and bring recommendations to your committee. Your committee decides.

Because you make the final call, you retain fiduciary responsibility for that decision. The advisor shares it with you rather than taking it from you. If a fund selection is later questioned, the question includes whether your committee's decision was prudent.

Sponsors choose 3(21) when they want to stay involved in investment decisions, or when a committee has genuine expertise and wants to exercise it.

What a 3(38) manager does

A 3(38) investment manager is appointed to make the decisions. They select, monitor, and replace the plan's investments without needing committee approval for each change, and they accept fiduciary liability for those decisions.

Your responsibility does not vanish. It shifts to a different duty: prudently selecting and monitoring the manager you appointed. That is a narrower and more manageable obligation than defending each fund in the lineup, and it is a duty you cannot delegate away.

Sponsors choose 3(38) when nobody internally wants to own investment decisions, when the committee's time is scarce, or when they simply want less of this risk sitting with the company.

The distinction that matters at renewal

Plenty of advisors serve plans without holding either role. They help with enrollment meetings, answer participant questions, and make suggestions about the fund lineup, all without accepting fiduciary status in writing. That arrangement leaves the entire investment fiduciary duty with the employer.

So the first question is not 3(21) or 3(38). It is whether your current advisor has acknowledged fiduciary status at all. Ask for it in writing. A firm serving in one of these roles will state which section and provide the agreement language.

How we approach it

We serve in both capacities depending on what the plan needs, and we tell sponsors plainly which one we think fits. A company with an engaged finance team that wants a voice in the lineup is a reasonable 3(21) client. A company where the plan is one of forty things the HR director handles is usually better served by 3(38).

Either way the documentation matters as much as the choice. Fiduciary process is judged by evidence, so the committee minutes, the investment policy statement, and the monitoring reports are the defense.