LUTZ BUSINESS INSIGHTS
3(21) AND 3(38) FIDUCIARY SERVICES
PUBLISHED: JANUARY 19, 2018
Plan sponsors are required by ERISA to provide an investment lineup for participants that has been prudently selected and monitored to minimize and control risk. To ease this burden, a retirement plan advisor may act as an ERISA 3(21) investment fiduciary with regards to the selection, monitoring and replacement of plan investments or as an ERISA 3(38) fiduciary with full discretion regarding the selection, monitoring and replacement of plan investments.
A retirement plan advisor can serve in either a 3(21) or 3(38) fiduciary capacity, and in some cases, both capacities. The needs and desires of the plan sponsor typically dictate the specific arrangement, which is predicated upon the subject of risk mitigation versus risk avoidance. Some plan sponsors want assistance with their fiduciary responsibilities, but want to maintain discretion and control of their plans’ investment menus. Others want to shift responsibilities to a third party due to their lack of expertise, and ultimately, fear of exposure to liability.
Any individual is a fiduciary under Section 3(21) if he or she exercises any authority or control over the management of the plan or the management or disposition of its assets; if he or she renders investment advice for a fee (or has any authority or responsibility to do so); or if he or she has any discretionary responsibility in the administration of the retirement plan.
Section 3(38) defines “investment manager” as a fiduciary due to their responsibility to manage the plan’s assets. ERISA provides that a plan sponsor can delegate the responsibility (and thus, likely the liability) of selecting, monitoring and replacing investments to a 3(38) investment manager/fiduciary. A 3(38) fiduciary may only be a bank, an insurance company, or a registered investment advisor (RIA) subject to the Investment Advisers Act of 1940.
|State in writing fiduciary status||State in writing fiduciary status|
|Follows IPS to build an approved fund menu*||Drafts IPS & must follow the IPS to build the fund menu|
|Provides a list of approved funds||Builds fund lineup**|
|Assists with monitoring of approved fund menu||Monitors fund lineup|
|Makes recommendations for changes to approved fund menu||Makes changes to fund lineup|
|Recommends mapping guidelines||Determines mapping strategies|
|Provides documentation||Provides documentation|
*Plan sponsors can choose from a menu of approved funds that the advisor maintains through the use of an IPS and the proprietary Scorecard System™.
**The advisor will build, monitor and make the necessary changes to the fund lineup for a plan.
Anyone can call himself or herself a fiduciary, but a fiduciary is determined not only by title, but by actions as well. Both 3(21) and 3(38) advisors accept fiduciary responsibility and adhere to ERISA §404(a)’s duty to serve solely in the interest of plan participants. In addition, both have to meet the “prudent expert” standard of care. Plan sponsors retain the responsibility to select and monitor the advisor, regardless of their advisor’s fiduciary status. Plan sponsors should consider the advisor’s experience, skill and level of expertise, in addition to their desire to take on exposure to potential liability.
Important Disclosure Information
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Lutz Financial), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Lutz Financial. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Lutz Financial is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the Lutz Financial’s current written disclosure statement discussing our advisory services and fees is available upon request.
CHRIS WAGNER, CHFC®, CFP®, CPFA® + INVESTMENT ADVISER
Chris Wagner is an Investment Adviser at Lutz Financial. With 15+ years of relevant experience, he specializes in providing company and corporate retirement plan consulting and investment advisory services. He lives in Elkhorn, NE, with his wife Kristin, and children Brynn and Owen.
AREAS OF FOCUS
- Retirement Plan Consulting
- Investment Product Analysis
- Provider and Fee Benchmarking
- Fiduciary Guidance
- Plan Design Analysis
- Investment Advisory Services
- Participant Education
AFFILIATIONS AND CREDENTIALS
- National Association of Plan Advisors, Member
- CERTIFIED FINANCIAL PLANNER®
- Certified Plan Fiduciary Advisor®
- Chartered Financial Consultant
- BSBA in Marketing, Midland University, Fremont, NE
- American College of Financial Services, Bryn Mawr, PA
- Knights of Columbus, Member
- St. Wenceslaus, Volunteer Coach
- Tax Credits Increase for Companies Establishing a Retirement Plan in 2020!
- Selecting and Monitoring Service Providers
- Strategies to Minimize Fiduciary Liability
- 3(21) and 3(38) Fiduciary Services
- Tips for Administering a Prudent Retirement Plan
- The 2017 To-Do List for 401(k) Plans
- October 1st Safe Harbor 401k Deadline
- How Are You Paying the Company's Retirement Plan Expenses?
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