3(21), 3(38), or 3(16): Find the Right 401(k) Fiduciary Services For You
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 decisions||Company / You||YES||Company / You|
|Monitor Investments for employees||Company / You||YES||Company / You|
|Design 401(k) rules (example: define compensation, eligibility, etc.)||Company / You||Company / You||Company / You|
|Track employee eligibility and send IRS notices/disclosures||Company / You||Company / You||Company / You|
|Responsible for payroll sync and employee changes||Company / You||Company / You||Company / You|
|Process hardship withdrawals, loans, QDROs||Company / You||Company / You||Company / You|
|Run nondiscrimination tests||Company / You||Company / You||Company / You|
|Review, sign, and submit IRS filings (including Form 5500)||Company / You||Company / You||Company / You|
|Meet Department of Labor 404c education requirements||Company / You||Company / You||Company / You|
|Review provider in quarterly investment committee meetings||Company / You||Company / 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.
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):
|Make investment recommendations||Company / You||Company / You|
|Make investment decisions||Company / You||Company / You|
|Monitor Investments for employees||Company / You||Company / 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.
See the full spectrum of fiduciary options
How much work and liability do you want to take on? How much expertise can you delegate internally? What do you want your team to spend their time on?
Compare the full spectrum of work you can delegate out to an ERISA fiduciary below, everything from investment responsibilities to plan administration work, with full details in our fiduciary handbook.
Want a 3(21), 3(38), 3(16) or everything? Need helping figuring out how much fiduciary protection you want to bring on? Talk to an ERISA retirement plan expert today.
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