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

November 23, 2016 by Esther Kim
401k fiduciary services

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):  

  3(16) Fiduciary None
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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Esther Kim

Esther Kim

Esther brings a wealth of industry and marketing experience to ForUsAll. She’s spent four and a half years as a marketing leader in fintech companies, with a focus on 401(k) solutions. Esther got her start at Qualcomm, honing her corporate communications chops serving the executive team within Government Affairs. She's rolled up her sleeves to build marketing and customer success teams at Lever and SigFig. Esther joined ForUsAll after serving with the founding team at Financial Engines. Esther earned her BA in Psychology from the University of California, San Diego. In her free time, Esther is learning French, loves to be outdoors, and is an avid Korean dumpling maker.
Esther Kim

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