--- title: Weighing In on the 3(21) vs. 3(38) Debate description: Weighing In on the 3(21) vs. 3(38) Debate image: https://www.dwc401k.com/hubfs/Knowledge%20Center/Pillar%20Categories%202024/PNG%20-%20with%20category%20name/hero_ii_png_category.png --- [![logo](https://www.dwc401k.com/hubfs/_global/logo.svg "logo")](https://www.dwc401k.com/) [![logo](https://www.dwc401k.com/hubfs/Dwc-2019/SVG/logo.svg "logo")](https://www.dwc401k.com/) [![Contribution Limits](https://no-cache.hubspot.com/cta/default/3113501/af3ae025-72b1-41fa-8855-5e196d6c26e4.png)](https://cta-redirect.hubspot.com/cta/redirect/3113501/af3ae025-72b1-41fa-8855-5e196d6c26e4) [![Log in](https://no-cache.hubspot.com/cta/default/3113501/3466ce37-58ba-4a93-bddb-0d4c8bb8ccbc.png)](https://cta-redirect.hubspot.com/cta/redirect/3113501/3466ce37-58ba-4a93-bddb-0d4c8bb8ccbc) [![services-icon1](https://www.dwc401k.com/hubfs/QOTW/March%202020/services-icon1.png) ## Plan Document A properly drafted document is the foundation of achieving the company's objectives and keeping the plan in operational compliance. ](https://www.dwc401k.com/services/plan-document) [![services-icon2](https://www.dwc401k.com/hubfs/QOTW/March%202020/services-icon2.png) ## Plan Compliance We have a fundamental understanding of how critical plan compliance is to both the IRS and Department of Labor. ](https://www.dwc401k.com/services/plan-compliance) [![services-icon3](https://www.dwc401k.com/hubfs/QOTW/March%202020/services-icon3.svg) ## Defined Benefits Services We work with business owners and investment advisors to determine what makes the most sense by providing a detailed cost benefit analysis. ](https://www.dwc401k.com/services/defined-benefits-services) [![services-icon4](https://www.dwc401k.com/hubfs/QOTW/March%202020/services-icon4.svg) ## Mergers, Aquisitions & Related Company Analysis The DWC team is well-versed enough in the nuances and is ready to help you navigate the situation. ](https://www.dwc401k.com/services/mergers-acquisitions-analysis) [![services-icon5](https://www.dwc401k.com/hubfs/QOTW/March%202020/services-icon5.png) ## Plan Corrections DWC's extensive experience with both the IRS and Department of Labor voluntary correction programs allows us to help you address just about any accident that might happen. ](https://www.dwc401k.com/plan-corrections) [![services-icon6](https://www.dwc401k.com/hubfs/QOTW/March%202020/services-icon6.png) ## Government Audits Being selected for an audit can feel overwhelming, but the process doesn't have to be. ](https://www.dwc401k.com/services/government-audits) ![service-right-icon](https://www.dwc401k.com/hubfs/QOTW/March%202020/service-right-icon.svg) ## Investment Advisor Support DWC has a long history of successfully partnering with investment advisors. 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Pozek ](https://www.dwc401k.com/blog/author/adam-c-pozek) | Published: 03/10/2010 | [Fiduciary Responsibility](https://www.dwc401k.com/blog/topic/fiduciary-responsibility), [Industry Insights](https://www.dwc401k.com/blog/topic/industry-insights) Several weeks ago, I had a lengthy conversation with a prospective client (we’ll call her Alice) and her investment advisor.  After the standard dialogue about fees, service guarantees, etc., the discussion inevitably turned to the retirement plan “F” word – FIDUCIARY.  Alice had read [this article](http://advisor.morningstar.com/articles/article.asp?docId=17902) and wanted to know if the advisor would be a 3(21) or 3(38) fiduciary. In a nutshell, one of the key differences between 3(21) and 3(38) fiduciaries is discretionary authority.  An advisor who receives a fee for the investment advice he or she provides is per se a plan fiduciary according to ERISA § 3(21).  When an employer hires a 3(21) advisor, the employer is not relieved of fiduciary responsibility.  Rather, they simply engage an expert to join them at the fiduciary table.  Typically, the advisor makes recommendations, but it is ultimately up to the plan sponsor to decide whether and how to act.  You know, something like [leading a horse to water](http://www.phrases.org.uk/meanings/you-can-lead-a-horse-to-water.html).  The advisor is responsible for his/her advice but not for the outcome if the employer goes in a different direction. When an employer hires an ERISA § 3(38) investment manager, they transfer responsibility/liability for the investment management process to that person.  Since the buck now stops with the advisor, he or she pretty much calls the shots when it comes to investment decisions.  The sponsor should recall, however, that they cannot completely eliminate liability.  If they neglect to monitor and replace a 3(38) that is running amok, the employer can find themselves right back on the hook. So which is better?  While the article I referenced earlier seems to say 3(38)s rule while 3(21)s drool, there is a place for both.  Let’s go back to our friend, Alice, who found herself in a bit of a contradictory position.  She wanted her advisor to be a 3(38) investment manager, so she could minimize her liability; however, she also felt strongly that her plan should only include index funds and wanted to retain veto power if the advisor tried to include any non-index options.  You know, something like [having one’s cake and eating it too](http://en.wikipedia.org/wiki/Have_one's_cake_and_eat_it_too). Many sponsors have the knowledge to take active roles in the investment selection process, and engaging a 3(21) advisor to provide analysis and recommendations is a perfectly valid option.  The services of 3(21) are usually less expensive, but why should an employer pay extra for services they do not believe add sufficient value? Hiring a 3(38) investment manager is also a valid option when a plan sponsor is comfortable turning over the investment reins.  The 3(38) will likely carry a higher price tag, but the mitigation of some of the sponsor’s fiduciary risk may well justify the added expense. At the end of the day, both 3(21)s and 3(38)s have a place in the fiduciary universe, and we must help our clients cut through the spin, understand the differences and engage advisors who will provide the services that add value. - Share - [**](https://www.facebook.com/sharer/sharer.php?u=https://www.dwc401k.com/blog/2010/03/10/weighing-in-on-the-321-vs-338-debate&title=Weighing%20In%20on%20the%203(21)%20vs.%203(38)%20Debate&picture=https://www.dwc401k.com/hubfs/Knowledge%20Center/Pillar%20Categories%202024/PNG%20-%20with%20category%20name/hero_ii_png_category.png&description=Weighing%20In%20on%20the%203(21)%20vs.%203(38)%20Debate) - [**](https://twitter.com/share?url=https://www.dwc401k.com/blog/2010/03/10/weighing-in-on-the-321-vs-338-debate&hashtags=) ## Browse categories [ DWC Developments ](https://www.dwc401k.com/blog/topic/dwc-developments) [ Industry Insights ](https://www.dwc401k.com/blog/topic/industry-insights) [ Regulatory Round-Up ](https://www.dwc401k.com/blog/topic/regulatory-round-up) [ Cash Balance Corner ](https://www.dwc401k.com/blog/topic/cash-balance-corner) [ 401(k) Q&A ](https://www.dwc401k.com/blog/topic/401k-qa) [ Operational Overview ](https://www.dwc401k.com/blog/topic/operational-overview) [ Lessons from Litigation ](https://www.dwc401k.com/blog/topic/lessons-from-litigation) [ Pension Primer ](https://www.dwc401k.com/blog/topic/pension-primer) [ Browse by Topic ](https://www.dwc401k.com/knowledge-center-topics) ## Subscribe to our newsletter ### Only the Best Retirement Industry Content Get our 401(k) and defined benefits content delivered directly to your inbox. 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