Fiduciary Word Cloud

3(16), 3(21), or 3(38) Fiduciary – What’s the Difference?

When it comes to your company retirement plan, there are several different fiduciaries with which your company can partner. But knowing the differences can be confusing at best and at worse can mean thinking you have reduced your liability when you really haven’t.

Each one is named after the section of ERISA in which they are discussed, and each is a little different. Let’s compare these three common types of fiduciaries.

First, all three have something very important in common – they are all legally required to act in the best interest of the participants. That is an important commonality. It is also important that even when hiring a fiduciary to decrease liability, the plan sponsor still has a duty to ensure a prudent process for selecting and monitoring the provider they hire.

Now for the differences:

3(16) fiduciaries are providers hired by a company to take care of the day-to-day administration of the retirement plan. It’s important to note that a third-party administrator is not necessarily a 3(16) fiduciary. Assignment of fiduciary responsibility needs to be agreed in writing to satisfy Department of Labor regulations. Providers offering 3(16) plan administration services are not all the same either, they offer different services so companies looking to hire this type of provider would do well to understand their own needs and which providers can best meet them. A 3(16) fiduciary’s responsibilities do not include advising on or managing investments.

3(21) fiduciaries work alongside plan sponsors to help them select investments for their plan, however, they do not have discretion over the investments. This means that although they provide valuable advice, the plan sponsor retains responsibility, and liability, for the selection and monitoring of plan investments. If you work with a plan advisor who gives you investment recommendations, but you are the one who actually decides which investments go in the plan, then chances are you are working with a 3(21) fiduciary.

3(38) fiduciaries act as investment managers for the plan. Unlike the 3(21) advisor, the 3(38) investment manager has discretion over the plan investments. This means it is the 3(38) provider who selects and monitors the plan investments. This can be a huge advantage to plan sponsors who do not have to spend time on investment management and also relieves them of significant liability in this area.

Being a business owner is hard enough without also having to manage the retirement plan. If you need help managing your plan investments, Beacon Wealth Consultants, through our turn-key Kingdom(k)® and Kingdom(b)® retirement plans, can help by acting as your 3(38) investment management fiduciary. Schedule a call today to find out more about our services!