Differences between a 3(21) Fiduciary versus a 3(38) Fiduciary | Maillie LLP

Differences between a 3(21) Fiduciary versus a 3(38) Fiduciary

by Lisa Maniscalco, CPA, Audit Manager



The Employee Retirement Income Security Act of 1974 (ERISA) defines a Fiduciary as a person who is involved in:

     a) Plan administration,
     b) An individual or individuals with management and control over investments, or
     c) An individual or individuals who give investment advice regarding plan assets.

Under the ERISA rules, a business can hire two different classes of investment fiduciaries: the 3(21) Fiduciary and the 3(38) Fiduciary. Here is a high-level look at the difference between the two types of Fiduciary:

3(21) Fiduciary

A 3(21) fiduciary is an investment adviser and ‘co-fiduciary’ with the company fiduciary (business owner, board, or named fiduciary). They help build the fund lineup, review the investment selection, and make recommendations. They do not have any decision-making or discretionary authority. This is an important detail that makes the company fiduciary still responsible for making the actual decisions.  The result is that the company fiduciary is still liable for fees and performance.

3(38) Fiduciary

A 3(38) fiduciary is an investment manager who will handle the work, review investment options, make decisions and ultimately take responsibility for the plan’s day-to-day investments. Although the Company can delegate most of their responsibility to a 3(38) fiduciary, it is the Company’s responsibility for choosing a good 3(38) fiduciary and monitoring the fiduciary’s performance.

ERISA provides the flexibility for a plan to decide which type of Fiduciary it wants to hire or if it wants to hire both a 3(21) and a 3(38) Fiduciary.  The needs of the plan, the plan administrator or the Company may lend themselves to one type of Fiduciary over the other.

Contact your Maillie advisor for more information.