What is a 3(21) Advisor?

A 3(21) advisor is a retirement plan co-fiduciary that helps the plan sponsors and participants regarding their retirement plan. This type of advisor is excellent for plan sponsors who would like outside council but want to retain the ability to make all the investment decisions in the retirement plan. A 3(21) advisor aids in the following ways:

• Provide non-discretionary investment advice to you (the client) when it comes to assets classes and investment alternatives that are aligned with the policies and objectives of the plan.
• Assist you (the client) in developing an Investment Policy Statement (IPS)
• Assist you (the client) in monitoring the plan’s investment options. Ensure the investments are still aligned with the plan’s investment policy statement. If the investments are no longer aligned to the plan’s IPS, create recommendations to realign the plan investments with the investment policy statement
• Provide you (the client) with non-discretionary advice regarding the selection of a qualified default investment alternative for participants who are automatically enrolled in the plan or have not yet made any investment decisions.

One very important detail that must be pointed out: A 3(21) Advisor only provides advice to their clients. It is not the advisor’s responsibility to carry out the advice provided to them. This would be the Plan Sponsor’s responsibility. Since the Plan Sponsor is responsible for implementing the advice, the Plan Sponsor would also be held liable for any repercussions from implementing this advice.

What is a 3(38) Advisor?

A 3(38) advisor is a 3(21) advisor but with a larger role in the retirement plan. A 3(38) advisor becomes the investment manager of the retirement plan. A 3(38) advisor would be responsible for:

• Implement investment decisions relating to asset classes and investment alternatives in the plan according to the policies and objectives of the plan
• Develop an investment policy statement
• Monitor the investment options. Ensure that the plan investments remain aligned with the IPS. If there are any necessary changes that must be made to the plan investments, inform the plan sponsor at least 30 days before making the necessary changes.
• Implement investment decisions relating to the selection of the qualified default investment alternative for participants who are automatically enrolled in the plan or participants who have not made any investment decisions

A 3(38) advisor makes all the decisions regarding the plan investments. This type of advisor seeks to reduce a great amount of work for the Plan Sponsor while also reducing the amount of liability that the Plan Sponsor is exposed to. While opting for a 3(38) advisor doesn’t eliminate the total amount of investment liability that the plan sponsor is exposed to, it greatly reduces it. Plan Sponsor under a 3(38) advisor would only be responsible for overseeing the actions of the 3(38) advisor. The advisor should provide the plan sponsor with their reasonings for performing certain investment changes to the plan.