Understanding the Differences Between ERISA 3(21) and 3(38) Fiduciaries

July 2024

As a Plan Sponsor, navigating the complexities of the Employee Retirement Income Security Act (ERISA) can be challenging. One of the critical decisions you face is selecting the right fiduciary arrangement for your retirement plan. At Lebel & Harriman Retirement Advisors, we understand the importance of this decision and offer our guidance as both ERISA 3(21) and 3(38) fiduciaries. With decades of fiduciary experience, we aim to guide you through these options, ensuring your plan meets the highest standards of fiduciary responsibility.

ERISA 3(21) Fiduciary: An Overview

An ERISA 3(21) fiduciary is an advisor who provides investment advice to the Plan Sponsor or the Investment Committee. In this capacity, the fiduciary shares responsibility with the Plan Sponsor but does not have full discretion over the Plan’s assets. Instead, a 3(21) fiduciary makes recommendations, which the Plan Sponsor can accept or reject.

Benefits of Hiring an ERISA 3(21) Fiduciary
  1. Shared Responsibility: The Plan Sponsor retains control over the final investment decisions while benefiting from professional advice.
  2. Flexibility: The sponsor can leverage the fiduciary’s expertise without relinquishing full control over the plan’s assets.
  3. Cost-Effective: Typically, 3(21) fiduciary services can be more cost-effective than 3(38) services, making it an attractive option for cost-conscious companies or those with budget constraints.

ERISA 3(38) Fiduciary: An Overview

An ERISA 3(38) fiduciary, on the other hand, is granted full discretionary authority to manage the plan’s assets. This fiduciary assumes responsibility for selecting, monitoring, and replacing the investment options within the plan. By transferring this responsibility, the Plan Sponsor shifts the burden of investment decisions to the 3(38) fiduciary. The Plan Sponsor remains responsible for oversight of the 3(38) fiduciary’s process.

Benefits of Hiring an ERISA 3(38) Fiduciary
  1. Reduced Liability: By appointing a 3(38) fiduciary, the Plan Sponsor can significantly reduce their fiduciary liability regarding investment decisions.
  2. Expert Management: Offering discretionary investment oversight based on thorough analysis and market insights.
  3. Time Savings: With the 3(38) fiduciary managing the plan’s investments, the Plan Sponsor can focus on other critical aspects of their business and/or their Plan.

Lebel & Harriman Retirement Advisors: Your Fiduciary Partner

At Lebel & Harriman Retirement Advisors, we pride ourselves on our comprehensive fiduciary services, offering both 3(21) and 3(38) fiduciary arrangements. Our decades of experience in the fiduciary landscape equip us to provide tailored solutions that meet the unique needs of each client.

Our 3(21) Fiduciary Services

As a 3(21) fiduciary, we collaborate closely with Plan Sponsors, providing:

  • Investment Advisory Services: Offering recommendations based on thorough analysis and market insights.
  • Investment Policy Statement (IPS): Providing a draft IPS outlining the criteria used to prudently evaluate the investment options offered.
  • Ongoing Support: Assisting with the evaluation and monitoring of investment options to ensure they align with the plan’s goals.
  • Education and Training: Equipping Plan Sponsors with the knowledge to make informed investment decisions.
Our 3(38) Fiduciary Services

As a 3(38) fiduciary, we take on the responsibility of managing the plan’s investments, including:

  • Full Discretionary Management: Making all investment decisions on behalf of the Plan Sponsor.
  • Rigorous Monitoring: Continuously evaluating investment options to optimize performance and mitigate risks.
  • Compliance Assurance: Ensuring all investment decisions comply with ERISA standards, thereby reducing the Plan Sponsor’s liability.

Making the Right Choice

As a Retirement Plan Sponsor, understanding the distinctions between an ERISA 3(21) and 3(38) fiduciary is essential for effective retirement plan management. At Lebel & Harriman Retirement Advisors, we are committed to helping you determine the best fit for your retirement plan by offering expert advice and the highest level of service. Contact us today to explore how we can support your fiduciary responsibilities and enhance the success of your retirement plan.

This document is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. The information provided has been derived from sources believed to be reliable, but is not guaranteed as to accuracy, and does not purport to be a complete analysis of the material discussed.

Any tax-related information connected to this article is provided as general education and should not be considered a recommendation. Further, you should seek specific tax advice from your tax professional before pursuing any idea contemplated herein. Securities offered through Valmark Securities, Inc. Member FINRA, SIPC. Investment Advisory Services offered through Valmark Advisers, Inc. a SEC Registered Investment Advisor 130 Springside Drive Suite 300 Akron, OH 44333-2431 Telephone: 800-765-5201 Lebel & Harriman, LLP and Lebel & Harriman Retirement Advisors are separate entities from Valmark Securities, Inc and Valmark Advisers, Inc.

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