ERISA Fiduciary Types Explained
Understanding 3(16), 3(21), and 3(38) Fiduciary Roles for Your 401(k) or 403(b) Plan
By Nate Moody, CPFA | Senior Financial Advisor & Partner
Why This Matters
If you sponsor a 401(k) or 403(b) plan for your employees, you are a fiduciary. That is not a title you opted into. It came with the plan. Under ERISA (the Employee Retirement Income Security Act of 1974), a fiduciary is anyone who exercises discretionary authority or control over a plan’s management, assets, or administration, or who provides investment advice for compensation.1
The practical consequence is personal liability. As a plan fiduciary, you can be held personally responsible for how the plan is run, what investments are offered, what fees participants pay, and whether the plan’s governance process meets ERISA’s standard of prudence.
Many plan sponsors understand this in theory but underestimate it in practice. A 2025 survey by JP Morgan found that 53% of plan sponsors do not even realize they are a plan fiduciary.2 That gap between responsibility and awareness is where real risk lives.
The enforcement data reinforces the point. In fiscal year 2025, the Department of Labor’s Employee Benefits Security Administration (EBSA) recovered over $1.4 billion for employee benefit plans and their participants.3 EBSA closed 878 civil investigations, with 63% resulting in monetary recoveries or corrective actions. In roughly 19% of non-monetary corrections, the agency removed or barred individual plan fiduciaries.
Meanwhile, ERISA litigation continues to expand. Since 2016, more than 600 excessive fee and imprudent investment class action lawsuits have been filed against defined contribution plans. In 2025 alone, 94 such lawsuits were filed, the second-highest total in the past decade.4
The question for every plan sponsor is not whether fiduciary responsibility matters. The question is how much of that responsibility you carry alone, how much you have delegated to qualified professionals, and whether your current structure actually protects you the way you think it does.
The Fiduciary Landscape
ERISA Section 3 defines three distinct fiduciary functions, each with its own scope of authority, level of discretion, and implications for liability. These are not interchangeable labels. Each carries specific legal meaning, and the differences have real consequences for your plan’s governance and your personal exposure.
A common problem is that plan sponsors conflate these roles or assume their current service providers are doing more than they actually are. Your recordkeeper may handle plan transactions, but that does not make them a 3(16) fiduciary. Your financial advisor may recommend funds, but the nature of their fiduciary commitment depends entirely on whether they serve under a 3(21) or 3(38) arrangement, and the difference between those two models is significant.
For a broader overview of all fiduciary roles, including trustees and named fiduciaries, see our guide to the six types of retirement plan fiduciaries.
3(16) Plan Administrator
What It Is
The 3(16) Plan Administrator is the person or entity responsible for the day-to-day operations and administration of the plan. This is the fiduciary who ensures that the plan runs in accordance with its governing documents, applicable law, and regulatory requirements.
What It Covers
The 3(16) role encompasses a broad range of operational responsibilities: plan compliance and regulatory filings (including Form 5500), participant notices and disclosures (such as QDIA notices, safe harbor notices, and summary plan descriptions), eligibility determinations, distribution and loan processing, plan document amendments, and coordination with the plan’s recordkeeper and TPA on operational matters.
Who Typically Serves in This Role
By default, the plan sponsor is the 3(16) Plan Administrator. Unless the plan document specifically designates another party, the employer carries this responsibility. Some plan sponsors delegate 3(16) duties to a specialized third-party administrator (TPA) or a dedicated 3(16) fiduciary service provider. However, this is less common than many sponsors assume.
What Liability It Shifts
When a plan sponsor delegates the 3(16) role to a qualified provider, the operational and administrative fiduciary liability transfers to that provider. The provider becomes responsible for ensuring the plan is administered correctly, notices are delivered on time, and compliance obligations are met.
What Liability Remains
Even with a 3(16) delegation, the plan sponsor retains the fiduciary responsibility to prudently select the 3(16) provider and to monitor that provider on an ongoing basis. You can delegate the work, but you cannot delegate the duty to oversee the delegation.
Common Misconception
“Our TPA handles everything.” This is one of the most widespread and potentially dangerous assumptions in retirement plan governance. Most TPAs provide administrative services but do not accept 3(16) fiduciary status. They process transactions and generate compliance reports, but the fiduciary liability for those functions remains with the plan sponsor unless the TPA has explicitly agreed, in writing, to serve as a 3(16) fiduciary. Very few do.
When to Consider Outsourcing
Outsourcing the 3(16) function makes the most sense for organizations with limited internal HR or benefits staff, plans with complex compliance requirements (such as multiple plan structures or controlled group issues), and sponsors who want to reduce their administrative fiduciary burden. The trade-off is cost: 3(16) fiduciary services add an additional layer of fees.
3(21) Investment Advisor
What It Is
A 3(21) Investment Advisor is a fiduciary who provides investment advice to the plan but does not have discretionary authority over investment decisions. The advisor recommends. The plan sponsor (or its investment committee) decides. This is a shared governance model.
What It Covers
The 3(21) advisor’s scope typically includes: investment recommendations and fund menu construction guidance, ongoing fund monitoring and performance evaluation, fee benchmarking and analysis, investment policy statement (IPS) development and review, fiduciary committee meeting support and documentation, and education on investment-related fiduciary obligations.
The Shared Liability Model
The key feature of the 3(21) arrangement is co-fiduciary responsibility. The advisor shares fiduciary liability with the plan sponsor for investment-related decisions. The advisor is liable for the quality of their advice. The plan sponsor is liable for the decision to accept or reject that advice. Both parties bear responsibility.
This shared model has a practical advantage: it creates a documented, collaborative process. The advisor brings institutional expertise, market research, and fiduciary training. The plan sponsor brings knowledge of the organization’s goals, workforce demographics, and plan objectives.
Who Typically Serves in This Role
Registered investment advisory firms and retirement plan advisory practices (such as Lebel & Harriman) commonly serve in the 3(21) capacity. The advisor must acknowledge fiduciary status in writing, typically through a formal advisory agreement or an ERISA 408(b)(2) fee disclosure.
What Liability It Shifts
Working with a 3(21) advisor allows the plan sponsor to demonstrate a prudent fiduciary process. The sponsor can show that investment decisions were made with the benefit of professional guidance, documented analysis, and an established governance framework. While the sponsor retains final decision-making authority (and the liability that comes with it), the presence of a qualified co-fiduciary meaningfully strengthens the sponsor’s position in the event of a challenge.
What Liability Remains
The plan sponsor still makes the final investment decision and retains responsibility for that decision. A 3(21) arrangement does not allow the sponsor to blindly follow advice without conducting their own prudent review. The standard is not perfection; it is process. But the sponsor must be able to show they engaged with the advice, understood the rationale, and made an informed decision.
Common Misconception
“Our advisor is a fiduciary, so we’re covered.” This statement conflates fiduciary status with full liability transfer. Under the 3(21) model, the advisor is a co-fiduciary, not a substitute fiduciary. The sponsor still owns the final decision. The protection comes from the process, not from the title.
When This Model Fits
The 3(21) model works well for plan sponsors who want professional guidance but want to remain involved in investment decisions. It is a strong fit for organizations with active investment committees that value collaborative governance, sponsors who want to understand the rationale behind investment decisions, and plans where the committee has sufficient expertise to evaluate recommendations and make informed choices.
3(38) Investment Manager
What It Is
A 3(38) Investment Manager is a fiduciary with full discretionary authority over the plan’s investment decisions. Unlike the 3(21) advisor, the 3(38) manager selects, monitors, and replaces investments without requiring approval from the plan sponsor. The manager acts; the committee oversees.
What It Covers
The 3(38) manager’s scope includes: full discretion over the fund menu (including adding, removing, and replacing investment options), ongoing monitoring of investment performance, fees, and manager quality, implementation of the investment policy statement, and execution of investment changes in accordance with the plan’s objectives and guidelines.
The Delegated Liability Model
The defining feature of the 3(38) model is liability transfer. When a plan sponsor appoints a qualified 3(38) Investment Manager, the fiduciary liability for investment selection and monitoring transfers from the sponsor to the manager. The manager assumes legal responsibility for the prudence of investment decisions.
To qualify as a 3(38) Investment Manager under ERISA, the provider must be a registered investment adviser under the Investment Advisers Act of 1940, a bank (as defined under ERISA), or an insurance company. The provider must also acknowledge fiduciary status in writing.
What Liability It Shifts
The 3(38) model shifts the most investment-related fiduciary liability of any arrangement. The plan sponsor is no longer responsible for individual investment decisions. For plan sponsors concerned about personal liability related to fund selection and monitoring, this is the most protective structure available.
What Liability Remains
Even under a 3(38) arrangement, the plan sponsor retains the fiduciary duty to prudently select the investment manager and to monitor that manager’s performance on an ongoing basis. The sponsor must evaluate the manager’s qualifications, track record, fee structure, and ongoing suitability for the plan. If the manager underperforms or acts imprudently, the sponsor has a duty to act.
Common Misconception
“We hired a 3(38), so we have no investment liability.” This is perhaps the most dangerous misconception in the fiduciary landscape. A 3(38) appointment does not eliminate fiduciary status. It shifts the scope of that status. The sponsor moves from selecting investments to selecting and monitoring the investment manager. That is a meaningful reduction in day-to-day investment governance burden, but it is not a complete release of fiduciary responsibility.
When This Model Fits
The 3(38) model is well suited for plan sponsors who want to fully delegate investment decisions to a professional manager. It works well for committees that lack the time or expertise to evaluate individual fund recommendations, organizations that want to minimize their investment governance burden, and plans where the sponsor’s primary goal is to reduce personal liability for investment outcomes. The trade-off is control: the plan sponsor gives up the ability to make (or veto) individual investment decisions.
Side-by-Side Comparison
| Dimension | 3(16) Plan Administrator | 3(21) Investment Advisor | 3(38) Investment Manager |
|---|---|---|---|
| Scope | Plan operations and administration | Investment advice and recommendations | Full discretionary investment management |
| Discretion Level | Operational authority over plan administration | Advisory only; no investment discretion | Full investment discretion |
| Who Decides on Investments | N/A (not an investment role) | Plan sponsor, based on advisor recommendations | Investment manager decides independently |
| Sponsor Liability Retained | Selection and monitoring of 3(16) provider | Final investment decisions and monitoring of advisor | Selection and monitoring of investment manager |
| Provider Liability Assumed | Operational/administrative fiduciary duties | Co-fiduciary for investment advice quality | Full investment selection and monitoring liability |
| Best Fit For | Sponsors with limited HR staff or complex compliance | Sponsors wanting guidance while staying involved | Sponsors wanting full delegation of investment decisions |
The Liability That Never Transfers
Regardless of which fiduciary model you adopt, or how many functions you delegate, certain fiduciary obligations remain with the plan sponsor. This is the most important takeaway in this article.
Under ERISA, the plan sponsor always retains three non-delegable duties:
- The duty to prudently select service providers. Before appointing any fiduciary, the plan sponsor must conduct a reasonable due diligence process, evaluating qualifications, experience, fees, and conflicts of interest.
- The duty to monitor those providers on an ongoing basis. Selecting a qualified provider is not a one-time event. Periodic reviews of performance, fees, and suitability are a prudent and expected practice.
- The duty to act if a provider is not performing. If monitoring reveals underperformance, unreasonable fees, or fiduciary failures, the plan sponsor has a duty to take corrective action.
No amount of delegation eliminates fiduciary status entirely. A plan sponsor can reduce the scope of what they are personally responsible for, but they cannot outsource the obligation to govern prudently.
Questions Your Committee Should Be Asking
Bring these questions to your next committee meeting or advisor review:
- Does our investment advisor accept fiduciary status in writing? If so, under which ERISA section (3(21) or 3(38))?
- Does our TPA or recordkeeper accept 3(16) fiduciary responsibility, or is our organization carrying that liability internally?
- When was the last time we benchmarked our fiduciary service providers for cost, quality, and scope of services?
- Do we have a written investment policy statement (IPS), and does it reflect our current plan objectives and risk parameters?
- Can we document a clear, consistent process for selecting and monitoring every investment in the plan?
- Do we have meeting minutes and written records that demonstrate our fiduciary decision-making process?
- If the DOL knocked on our door tomorrow, could we produce evidence of a prudent fiduciary governance process?
If any of these questions give you pause, that is a signal worth paying attention to. It does not necessarily mean something is wrong, but it means the topic deserves a closer look.
For a more complete governance checklist, see our Fiduciary Checklist for Retirement Plan Sponsors.
Putting It All Together
Understanding your fiduciary structure is a practical risk management decision. It determines who is responsible for what, where your personal exposure begins and ends, and whether your plan’s governance process would hold up under scrutiny.
The good news is that the tools to manage this risk are well established. ERISA provides a clear framework for delegating fiduciary responsibility. Qualified advisors and fiduciary service providers can share or assume meaningful portions of the liability. And a documented, consistent governance process goes a long way toward demonstrating the prudence that ERISA demands.
At Lebel & Harriman, we work with plan sponsors across the full range of fiduciary structures. We serve as ERISA 3(21) co-fiduciary investment advisors for plans where collaborative governance is the right fit, and we offer 3(38) discretionary investment management for plans that prefer full delegation. Our role is to help you build a fiduciary framework that matches your organization’s needs, resources, and risk tolerance.
If you would like to evaluate your plan’s current fiduciary structure, we are happy to help.
Sources
- ERISA Section 3(21)(A), 29 U.S.C. §1002(21)(A).
- JP Morgan 2025 Defined Contribution Plan Sponsor Survey.
- U.S. Department of Labor, Employee Benefits Security Administration, ERISA Enforcement Fact Sheet, Fiscal Year 2025.
- Mayer Brown, “The Evolution of Defined Contribution Plan Class Action Litigation in 2025” (October 2025); PLANADVISER, “DC Plans Involved in 63% of 2025 ERISA Litigation” (February 2026).
This article is provided for informational and educational purposes only and does not constitute legal, tax, or investment advice. Plan sponsors should coordinate with their legal and tax advisors before making decisions about their plan’s fiduciary structure.
Securities offered through Valmark Securities, Inc. Member FINRA/SIPC. Advisory services offered through Valmark Advisers, Inc., a SEC-registered investment advisor. Lebel & Harriman Retirement Advisors is a separately owned entity from Valmark Securities, Inc. and Valmark Advisers, Inc.
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