A 3(21) fiduciary advises the employer on plan investments, but the employer keeps final decision-making authority and shares liability. A 3(38) fiduciary takes discretionary control of selecting and monitoring investments, shifting that responsibility to the advisor. Many small and mid-size employers choose a 3(38) to reduce their burden. A 401(k) plan advisor for Chattanooga employers can explain which fits your company.
Under ERISA, the people who run a 401(k) must act prudently, solely in participants' interest, diversify investments, follow plan documents and pay only reasonable fees. Those duties apply whether or not you hire help.
The advisor recommends funds and monitors them, and the employer makes final decisions. Liability for investment selection is shared.
The advisor has discretion to select, monitor and replace plan investments. The employer remains responsible for prudently selecting and monitoring the 3(38) itself, but day-to-day investment decisions move to the advisor.
ERISA requires that plan fees be reasonable for the services provided. Compare recordkeeping, investment and advisory costs against plans of similar size every few years, and document the review. Many lawsuits against plan sponsors center on fees that were never benchmarked.
Automatic enrollment, automatic escalation and a well-built default investment can raise participation and savings rates without extra effort from employees. Group education sessions and one-on-one meetings help employees use the plan well.
Keep minutes of investment reviews, a written investment policy statement and records of fee comparisons. A documented process is the best evidence that fiduciary duties were met.
No. It shifts investment selection, but the employer must still prudently select and monitor the 3(38) and other providers.
Not legally, but ERISA duties apply regardless of size, and an advisor helps document a prudent process.
A written document that sets how plan investments are selected, monitored and replaced.
Sponsor a plan or starting one? Meet with our 401(k) plan advisor for Chattanooga employers.
This article is for educational purposes only and is not individualized investment, tax or legal advice. Talk with a qualified professional about your specific situation.
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