Go beyond a basic 401(k)

Go beyond a basic 401(k)

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

5 min read

What’s the Difference Between a 3(16), 3(21), and 3(38) Fiduciary?

Anna Wilkes
May 27, 2022
What’s the Difference Between a 3(16), 3(21), and 3(38) Fiduciary?
Table of contents

Trying to untangle the difference between a 3(16), 3(21), and 3(38) fiduciary? This is a key area of your 401(k) plan that you'll need to understand as you evaluate 401(k) providers.

401(k) fiduciaries help protect businesses by taking on much of the complex work that business owners may not have the time or specialized knowledge to do effectively. However, there is more than one kind of fiduciary. Depending on which type of fiduciary you hire, they can make a difference in how much money and time you spend by assisting with plan design, investment decisions, fund monitoring, or administration. Here are some of the key differences between 3(16), 3(21), and 3(38) fiduciaries, plus information on how each type could help your business.

Investments vs Administration

The first major difference between the three kinds of 401(k) fiduciaries is whether they handle investments or plan administration. A 3(16) fiduciary takes on plan administration and upkeep, whereas 3(21) and 3(38) fiduciaries specialize in investment management, but have differing levels of control over investments. Here’s a detailed breakdown of the services these advisors provide.


A 3(16) fiduciary specializes in plan administration, and can help to save your business both time and money. Daily tasks include processing changes to employee savings rates or personnel, and syncing payroll data. In addition, this type of fiduciary will design the compensation and eligibility structures for the plan, track employee eligibility, and send related IRS disclosures and notices.

One of the most important ways that a 3(16) fiduciary can help you is by ensuring compliance with requirements from the IRS and the Department of Labor. 3(16)s run regulatory tests, file paperwork with the IRS (including Form 5500), and review quarterly investment reports. The penalties for failing to meet these requirements can be steep. For example, the IRS charges up to $250 per day, with a maximum of $150,000, for failure to file the Form 5500 on time. The DOL can levy an additional penalty of up to $2,259 per day, with no maximum.


3(21) fiduciaries deal with investment advice, but not investment management. Therefore, they do not have as much control over investment options as 3(38) fiduciaries. A 3(21) has limited responsibility, and mostly provides insight and professional advice to participants about their investment choices. Many companies that are large enough to have a dedicated investment committee to select, monitor, and review their 401(k) investment lineup choose to hire a 3(21) fiduciary to assist participants. This type of fiduciary can be especially helpful for teams that already have some investment experience, but would like some expert guidance. However, when hiring a 3(21) fiduciary, the majority of liability still rests with the sponsor, as well as all plan maintenance.


Businesses without a dedicated investment committee often benefit from a 3(38) fiduciary’s services. 3(38) fiduciaries take on the responsibility for selecting, monitoring, and reviewing the funds available in a 401(k). Because a 3(38) fiduciary is responsible for making investment decisions on your company’s behalf, they also assume the related liability. 3(38)s will provide a detailed fund report to you, most often on a quarterly basis. Like a 3(21), a 3(38) fiduciary can provide investment advice to your participants, but unlike a 3(21), they assume full responsibility for the investment choices available.

Choose Based on Your Needs

Ultimately, the best kind of fiduciary for your business depends on your needs and resources, which includes the needs of your employees. Many businesses find that some combination of fiduciary services helps them best, particularly if the business is growing and doesn’t have a dedicated investment committee. Select a fiduciary based on how much liability and work you want to delegate, as well as what kinds of support your team needs. The right fiduciary can help your business by saving you time and money, and keeping you out of legal trouble.

Go beyond a basic 401(k)
Give your employees more than just a 401(k), join the movement.
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Anna Wilkes
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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.