Go beyond a basic 401(k)

Go beyond a basic 401(k)

Give your employees more than just a 401(k), join the movement.

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5 min read

3(21), 3(38), or 3(16): Find the Right 401(k) Fiduciary Services For You

Esther Kim
November 23, 2016
3(21), 3(38), or 3(16): Find the Right 401(k) Fiduciary Services For You
Table of contents

Hiring an ERISA 401(k) fiduciary to take on 401(k) fiduciary services protects your company by officially delegating most of the work on the 401(k) plan. After hiring a fiduciary, your company can lean on ERISA plan experts to get investment advice, feel confident that an investment manager is monitoring the funds in the 401(k) plan, and delegate error-prone plan administration work. Read more on why you should consider hiring a fiduciary for your plan.

There are two main areas of 401(k) fiduciary services: one that handles investments and one that handles plan administration work. The investment fiduciary is typically handled by a 401(k) advisor, and takes on some or all of the investment selection work and liability. The plan administration fiduciary takes on the day-to-day administrative tasks, completing annual IRS forms, filing them, and taking on the liability for the work to be done correctly.

Investment Advice and Management 401(k) Fiduciary Services: 3(21) Fiduciary vs. 3(38) Fiduciary vs. None

There are two different flavors of the investment fiduciary — the 3(21) and 3(38).  The overall benefit of hiring an investment fiduciary is to delegate the work and liability when it comes to selecting investments and giving investment advice.

Here’s what the 3(21) and the 3(38) do:

 **3(21) Investment Advisor Fiduciary****3(38) Investment Manager Fiduciary****None**
Make investment recommendations**YES****YES**Company / You
Make investment decisionsCompany / You**YES**Company / You
Monitor Investments for employeesCompany / You**YES**Company / You
Design 401(k) rules (example: define compensation, eligibility, etc.)Company / YouCompany / YouCompany / You
Track employee eligibility and send IRS notices/disclosuresCompany / YouCompany / You Company / You
Responsible for payroll sync and employee changesCompany / YouCompany / You Company / You
Process hardship withdrawals, loans, QDROsCompany / YouCompany / You Company / You
Run nondiscrimination testsCompany / YouCompany / YouCompany / You
Review, sign, and submit IRS filings (including Form 5500)Company / YouCompany / YouCompany / You
Meet Department of Labor 404c education requirementsCompany / YouCompany / YouCompany / You
Review provider in quarterly investment committee meetingsCompany / YouCompany / You Company / You

Companies will often work with either a 3(21) or a 3(38). In some cases, a 401(k) advisor will offer both 3(21) and 3(38) investment fiduciary services (which is the case with ForUsAll), giving the company the best of both worlds.

  • With the 3(21) fiduciary, your employees can get advice directly from the fiduciary (but they will need to make the final decision on which funds they use, and how much they invest).
  • With the 3(38) fiduciary, you have now hired someone to be accountable for selecting the exact investments in the entire portfolio. They’re also responsible for monitoring and reviewing the funds regularly, and reporting performance results to you on, ideally, a quarterly basis. And your fiduciary has the final say, so if something goes wrong, then your fiduciary is on the hook. (Read more on what can go wrong if you are your own investment fiduciary.)

Choose a fiduciary that represents how much liability and work you want to delegate. And to fill in any gaps in investment expertise that might be missing on your internal team. If your team has real investment management experience and the time to monitor, select and document specific fund selection then you may only need a 3(21). Some companies are large enough to have a dedicated investment committee that can take on the work of selecting, monitoring, and reviewing funds in your retirement plan.

All of the best 401(k) advisors offer 3(38) and 3(21) 401(k) fiduciary services, so this should be easy to find. Still unsure which is right for you? Read our deeper dive on 3(21) fiduciaries vs. 3(38).

Plan Administration 401(k) Fiduciary Services: 3(16) Fiduciary vs. None

The overall benefit of hiring a plan administration fiduciary is to delegate the work and liability when it comes to the day-to-day administration tasks including processing changes to employee savings rates and processing 401(k) loans.

Here’s what a 3(16) does (and what’s left on your plate if you don’t hire a 3(16) fiduciary):  

 **3(16) Fiduciary****None**
Make investment recommendationsCompany / YouCompany / You
Make investment decisionsCompany / YouCompany / You
Monitor Investments for employeesCompany / YouCompany / You
Design 401(k) rules (example: define compensation, eligibility, etc.)**YES**Company / You
Track employee eligibility and send IRS notices/disclosures**YES** Company / You
Responsible for payroll sync and employee changes**YES** Company / You
Process hardship withdrawals, loans, QDROs**YES** Company / You
Run nondiscrimination tests**YES**Company / You
Review, sign, and submit IRS filings (including Form 5500)**YES**Company / You
Meet Department of Labor 404c education requirements**YES**Company / You
Review provider in quarterly investment committee meetings**YES** Company / You

While employees suing employers for egregious investment practices is what makes it into the news, it’s actually plan administration-related tasks that trigger the most compliance errors on ERISA retirement plans. By hiring a 401(k) advisor that offers 3(16) plan administration fiduciary services, and takes on the liability if something is done incorrectly, you’ve now saved your team a great deal of time and stress when it comes to the 401(k) plan.

Go beyond a basic 401(k)
Give your employees more than just a 401(k), join the movement.
Esther Kim
About Author -
Esther Kim
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This material has been prepared for informational and educational purposes only and should not be construed as a recommendation by ForUsAll, Inc., its affiliates or employees (collectively, “ForUsAll”)  to activate a cryptocurrency window or invest in crypto.  Investing in crypto can be risky and investors must be able to afford to lose their entire investment.  You should consult with your own advisers before activating a cryptocurrency window or investing in crypto.  ForUsAll does not provide legal, tax, or accounting advice. Please refer to your Plan's fee disclosure for more details.© 2023 ForUsAll, Inc. All rights reserved.
1 Schwab 2022 401(k) Participant Study - Gen Z/Millenial Focus, October 2022.
2 As of 12/31/2022. Employees include both current employees and terminated participants with a balance.
3 "Morgan Stanley At Work: The Value of a Financial Advisor" Morgan Stanley, March 2022.
4 Sarah Britton was a client when she provided this testimonial through an independent third party review website. She received no compensation for her remarks. There are no known conflicts of interest in the provision of her comments related to the services provided.