Two retirement plans can both "hire a fiduciary" and end up with completely different answers to the same question: who decides what happens to the investment lineup?
The difference is the structure, a 3(21) investment advisor who recommends, or a 3(38) investment manager with authority to decide.
For plan sponsors, the distinction matters because the level of responsibility retained by the committee changes significantly between the two arrangements. Understanding how these structures work can help committees determine which approach better fits their oversight process, internal expertise, and governance goals.
Why This Distinction Matters
Hiring an outside investment professional does not automatically transfer investment responsibility away from the employer. The answer is more nuanced.
Under ERISA, plan sponsors still maintain an obligation to prudently select and monitor service providers. However, the type of fiduciary relationship established can materially change how day-to-day investment decisions are handled and how oversight responsibilities are divided.
Understanding the difference between 3(21) and 3(38) arrangements positions a committee to:
define decision-making responsibilities
establish a more consistent oversight process
reduce confusion during committee reviews
document fiduciary responsibilities more clearly
The challenge is not simply choosing an investment lineup. The larger challenge is determining who is responsible for making, documenting, and implementing investment decisions over time.
A framework that compares how fiduciary responsibilities differ under each model helps organize that evaluation.
Decision Tool
3(21) vs. 3(38) Comparison Matrix & Decision Tool
A practical framework to compare investment fiduciary structures, committee responsibilities, oversight expectations, and delegation considerations.
A 3(21) fiduciary generally provides investment recommendations to the retirement plan committee. This can include guidance related to fund selection, investment monitoring, benchmarking, or updates to the investment policy statement.
The key distinction is that the committee retains final decision-making authority.
Under this structure, the committee is still responsible for:
approving investment changes
documenting investment decisions
reviewing recommendations
maintaining oversight of the investment lineup
This model works when the committee wants to remain directly involved in investment decisions while still receiving professional guidance.
The collaborative nature of a 3(21) arrangement fits organizations with experienced internal committees or strong governance processes. The committee maintains control while relying on outside expertise for analysis and recommendations.
At the same time, the structure requires committees to remain actively engaged in the decision-making process. If investment reviews become inconsistent or poorly documented, fiduciary exposure can still develop.
Fiduciary responsibility can extend more broadly within the committee structure than expected, particularly when fiduciary roles and responsibilities within the retirement plan committee are not clearly defined and documented over time.
How a 3(38) Investment Manager Changes the Structure
A 3(38) investment manager accepts discretionary authority to make investment decisions for the plan.
This typically includes:
selecting and replacing investment options
monitoring fund performance
implementing lineup changes
maintaining investment consistency with the investment policy statement
Under a properly structured 3(38) arrangement, the committee delegates discretionary investment decision authority to the investment manager.
That does not eliminate all fiduciary responsibility for the plan sponsor.
Committees must still prudently select and monitor the 3(38) provider itself. However, responsibility for the actual investment decisions generally shifts to the delegated investment manager when the arrangement is properly structured and documented under ERISA.
This structure can create operational consistency and reduce the burden of ongoing investment reviews. It can also help create clearer accountability regarding who is making investment decisions and when those decisions are implemented.
Evaluating a 3(38) arrangement is also part of a broader discussion around how fiduciary, administrative, and trustee responsibilities are divided across the retirement plan oversight structure.
When Does a 3(38) Structure Enter the Conversation?
Considering delegation does not mean a committee has lost interest in the plan. The discussion develops when investment oversight has become increasingly complex.
The situations that trigger this review are familiar ones:
In some organizations, committee members may feel comfortable overseeing the plan operationally but less confident making investment decisions directly. In those situations, a 3(38) structure may provide a clearer governance framework.
A committee can instead retain direct control over investment decisions and stay closely involved in lineup construction and provider discussions. Neither structure is automatically correct for every organization.
The more important question is whether the oversight model aligns with how the committee actually operates in practice.
The decision between a 3(21) and 3(38) fiduciary structure is ultimately a governance decision, not just an investment decision.
Committees should evaluate how responsibilities are currently handled, who is making investment decisions, how consistently those decisions are documented, and whether the committee has the time and expertise necessary to maintain ongoing oversight.
A well-structured process matters more than selecting the 'most protective' label. The goal is to establish a fiduciary framework that the committee can realistically sustain over time.
Putting It Into Practice
The real question is not whether a committee wants to retain investment authority. It is whether the committee has the time, structure, and consistency necessary to actively oversee investment decisions on an ongoing basis.
The struggle is a lack of good intentions or qualified providers. The challenge is determining whether the committee realistically has the oversight process necessary to consistently make, review, and document investment decisions over time.
If You Want a Clearer View of Your Plan
Some committees simply want confirmation that their current structure aligns with how responsibilities are actually being handled in practice. Others are evaluating whether a more delegated investment oversight model may improve consistency, documentation, or operational efficiency.
First Hill Trust can provide a brief review focused on:
current investment oversight structure
committee investment decision responsibilities
delegation and documentation processes
overall fiduciary governance alignment
Prefer to Evaluate This Internally?
Use the 3(21) vs. 3(38) Comparison Matrix & Decision Tool to help organize the discussion and clarify where investment responsibilities currently sit within your plan structure.
Decision Tool
3(21) vs. 3(38) Comparison Matrix & Decision Tool
A practical framework to compare investment fiduciary structures, committee responsibilities, oversight expectations, and delegation considerations.
The most effective fiduciary structure is the one that aligns with how the committee actually functions on an ongoing basis. Both models are legitimate: collaborative oversight with the committee deciding, or a delegated structure with clearly assigned authority.
What matters most is that responsibilities are understood, oversight remains consistent, and the process is documented thoughtfully over time. Clear fiduciary structure creates clearer governance overall.
Plan Sponsor FAQs
No. Appointing an ERISA 3(38) investment manager shifts liability for the individual investment decisions to that manager, but the plan sponsor retains the fiduciary duty to prudently select the manager in the first place and to monitor the arrangement on an ongoing basis.
That monitoring obligation, along with the documentation supporting it, never transfers, so a sponsor who selects carelessly or stops reviewing the manager's performance remains exposed.
Yes. Even though a 3(38) investment manager holds discretion over the actual investment decisions, the committee continues to monitor the manager's process, overall plan performance, and adherence to the investment policy statement.
This ongoing review is not second-guessing individual fund selections but rather satisfying the committee's own duty to prudently oversee the arrangement, and it should be captured in meeting minutes as part of the documented monitoring process.
Yes. A 3(21) advisor is a fiduciary under ERISA because they give investment advice for a fee, but they share that role with the committee rather than taking it over. The advisor recommends, the committee decides, and both carry fiduciary responsibility for their part of the process.
Some committees like keeping the final say over investment decisions while still having a professional advisor to lean on for recommendations.
It comes down to a tradeoff: a 3(21) structure means more control and continued involvement, but the committee also keeps more of the fiduciary responsibility than it would under a 3(38) arrangement.
Not necessarily. Neither structure is inherently better. The right fit depends on the committee's own process, internal expertise, how hands-on it wants to be, and how much capacity it has to stay involved in investment decisions.
A committee with the time and know-how might prefer the control of a 3(21), while one looking to offload investment discretion may lean toward a 3(38).
U.S. Department of Labor, Meeting Your Fiduciary Responsibilities, at dol.gov
29 U.S. Code § 1105, Liability for breach of co-fiduciary, at law.cornell.edu/uscode/text/29/1105
29 U.S. Code § 1103, Establishment of trust, at law.cornell.edu/uscode/text/29/1103
29 U.S. Code § 1102, Establishment of plan, at law.cornell.edu/uscode/text/29/1102
Important Disclosure
Educational purpose only. Provided by First Hill Trust Company for general informational and educational purposes only. It is not legal, tax, accounting, investment, or fiduciary advice, does not constitute a recommendation regarding any plan, investment, strategy, or course of action, and does not consider any recipient’s specific circumstances. Consult your own qualified advisors before acting. No offer, agreement, or commitment. Nothing in this material constitutes an offer, solicitation, agreement, or commitment to provide any particular service or to assume any particular responsibility. Descriptions of what a trustee, administrator, adviser, committee, employer, or other party “may” or “can” do are illustrative of how such arrangements commonly work and do not describe the terms of any specific engagement. The actual services provided, the allocation of responsibilities, the scope of any delegation, and the duties of any party are governed solely by the applicable plan documents, trust agreement, advisory agreement, and written service agreements. In the event of any inconsistency, those documents control. Services and regulatory status. First Hill Trust Company and its affiliates offer retirement plan services, recordkeeping and administrative services, trust and fiduciary services, investment advisory services, and group benefits services, in each case subject to applicable regulatory requirements and the terms of the relevant agreements. Not all services are offered to all clients, in all states, or in all circumstances. Investment advisory services are offered through an affiliated investment adviser; a copy of its Form ADV Part 2A is available upon request. Insurance and group benefits products are offered through appropriately licensed entities. The availability and scope of any service depend on eligibility and the applicable agreements. Fiduciary status under ERISA. Fiduciary status under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), is determined based on the functions performed and the authority exercised, not on titles or labels. Whether any particular party is acting as a fiduciary, and the scope of any related duties or potential liability, depends on the facts and circumstances specific to the plan and the relationship. Engaging a trustee, adviser, or other service provider does not eliminate a plan sponsor’s or committee’s own fiduciary responsibilities, including the duties to prudently select and monitor any party to whom responsibilities are delegated. Affiliated entities and conflicts of interest. First Hill Trust Company is affiliated with other entities, including an affiliated investment adviser and entities providing administrative, trust, or other services. These relationships may create conflicts of interest, including where an affiliate is engaged or compensated in connection with a plan. Such conflicts and compensation are described in the applicable service agreements and the affiliated adviser’s Form ADV Part 2A; fiduciaries should consider them when evaluating any engagement. Statutory and regulatory references. References to ERISA, the Internal Revenue Code, and related statutory or regulatory provisions are general summaries only. They are not a substitute for review of the actual statutory text, regulations, or guidance from the Department of Labor, Internal Revenue Service, or other relevant authorities, and they do not address how those provisions may apply to any particular plan, sponsor, fiduciary, or individual. Laws, regulations, and guidance are subject to change and to interpretation by the relevant agencies and courts. Examples, categories, and situations described are simplified for illustration and may not reflect the requirements or circumstances of any particular plan or person. No guarantee of results; investment risk. References to governance, fiduciary practices, risk reduction, or outcomes describe common industry approaches and potential benefits, not promises or guarantees of any result, of compliance, or of protection from liability, loss, or claims. All investing involves risk, including possible loss of principal; diversification does not ensure a profit or protect against loss. Past performance does not guarantee future results. For more information, contact First Hill Trust Company at (206) 625-1800 or visit firsthilltrust.com.
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