What Is a 3(38) Fiduciary and Why Might Your Plan Need One?

Nate Moody, CPFA – RETIREMENT ADVISOR, PARTNER

May 2025

Choosing the right fiduciary structure is one of the most important decisions a retirement plan sponsor can make, but it’s often one of the least understood. Many committees operate under a 3(21) advisory model without realizing that a 3(38) fiduciary arrangement could offer greater protection, efficiency, and peace of mind. In the article below, Nate Moody of Lebel & Harriman Retirement Advisors breaks down what a 3(38) fiduciary is, how it differs from a 3(21), and why more employers are turning to this model to strengthen their governance and reduce risk.

A Quick Refresher on ERISA Fiduciary Advisor Roles

Under ERISA, both 3(21) and 3(38) fiduciaries help plan sponsors with the critical task of managing plan investments, but the level of responsibility and liability they assume is quite different.

• 3(21) Investment Advisor: A 3(21) fiduciary provides advice and recommendations, but the plan sponsor or committee retains final decision-making authority and legal responsibility for the investment lineup. This model can be a good fit for plan sponsors who want to stay more actively involved in investment decisions but are comfortable with the associated fiduciary risk.
• 3(38) Investment Manager: A 3(38) fiduciary accepts full discretionary authority to select, monitor, and replace plan investments on the plan sponsor’s behalf. This relieves the sponsor of day-to-day investment decision-making and significantly reduces their fiduciary liability. The sponsor’s primary responsibility becomes the prudent selection and oversight of the 3(38) provider.

What a 3(38) Fiduciary Actually Does

A qualified 3(38) Investment Manager must acknowledge fiduciary status in writing and meet ERISA’s strict standards of prudence and loyalty. Their responsibilities typically include:

• Conducting ongoing due diligence and monitoring of investment options
• Making timely changes to the investment menu as market conditions or strategy dictate
• Ensuring the plan lineup remains well-diversified, cost-efficient, and aligned with the Investment Policy Statement
• Providing documentation and reporting to support fiduciary oversight

By offloading these tasks, plan sponsors can free up internal resources and gain confidence that the plan’s investments are being professionally managed.

Why More Plan Sponsors Are Opting for 3(38) Fiduciaries

Increased litigation, evolving investment products, and rising expectations from participants have made retirement plan governance more complex. A 3(38) arrangement can offer several compelling benefits:

• Risk Mitigation: By delegating discretionary authority, plan sponsors reduce their legal exposure for investment decisions.
• Efficiency: Committees can focus on high-level strategy and participant outcomes rather than getting into the weeds of fund changes.
• Expertise: A 3(38) fiduciary brings specialized investment knowledge, best practices, and a disciplined process to the table.
• Documentation: Quarterly reports and decision-making logs support the plan’s fiduciary file, helping demonstrate procedural prudence.

Is a 3(38) Fiduciary Model Right for Your Plan?

The best fiduciary model depends on your organization’s resources, risk tolerance, and desired level of involvement. Sponsors who prefer to retain decision-making control may be more comfortable with a 3(21) advisor. However, sponsors looking to reduce liability, delegate complexity, and ensure investment stewardship may find that a 3(38) solution is the better fit.

At Lebel & Harriman, we offer both 3(21) and 3(38) fiduciary services and help clients determine which model best suits their plan’s needs. Our internal 3(38) service is built around the principles of transparency, accountability, and performance, helping you manage risk while staying focused on your broader organizational goals.

Want to learn more about how a 3(38) fiduciary could benefit your plan? Contact us today to schedule a conversation.

Securities Disclosure: 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.