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Retirement Plan Fiduciary Duty When Hiring a 3(21) Fiduciary

Retirement Plan Fiduciary

Retirement Plan Fiduciary Duty When Hiring a 3(21) Fiduciary

Retirement plan fiduciary duties are very broad and in many instances, the job function is poorly communicated. Retirement plan fiduciaries oftentimes wear many hats – one of which is being a fiduciary to their organization’s retirement plan. Serving in the role of a retirement plan fiduciary role is vitally important to all company employees.  In recent years, retirement plan fiduciary lawsuits have highlighted that someone must always be minding the store when it comes to managing and monitoring your retirement plan’s investments. It’s all part of one’s retirement plan fiduciary responsibility.   A retirement plan fiduciary must serve your employees’ best interests. So how does one effectively balance retirement plan fiduciary duties along with all other day-to-day responsibilities? Outsourcing all or part of the investment management to a third-party investment manager has become a popular fiduciary solution among retirement plan sponsors.

Award-winning writer, researcher and speaker, Chris Carosa, and chief contributing editor to, recently wrote an article for Forbes, where he is a frequent contributor. Mr. Carosa examined the pros and cons of hiring a third party retirement plan fiduciary known as a 3(21) investment adviser. Doing so enables retirement plan sponsors to maintain some fiduciary responsibility for managing their retirement plans, while also benefitting from an adviser’s professional investment expertise. In short, a 3(21) advisor shares fiduciary liability and investment responsibility for a retirement plan.

A 3(21) advisor is one of three types of “fiduciary helpers” you can hire as a retirement plan fiduciary. There’s also a 3(16), which handles mostly administrative tasks, and a 3(38), which fully assumes all fiduciary liability for your retirement plan, except the monitoring and selection of the 3(38) provider, which remains with the plan sponsor. Mr. Carosa lists several pros and cons of hiring a 3(21) fiduciary:


It costs less to hire a 3(21) fiduciary: Since you retain responsibility for the plan, a 3(21) fiduciary takes on limited duties compared to other providers, which leads to lower costs.

Plan sponsors maintain greater fiduciary control: You and the 3(21) fiduciary share control of the decision-making. In fact, you have the power to veto the 3(21)’s suggestions. Said another way, you’re the final decision-maker. According to Mr. Carosa, “This then permits better coordination with company goals and strategies, since this is an area the plan sponsor is most familiar with.”

Ultimately, you remain in charge: You get to maintain total responsibility for managing the retirement plan.


You assume more fiduciary liability: The price of maintaining control is that the 3(21) only acts a co-fiduciary. Thus, you basically keep the same fiduciary liability with or without a 3(21) adviser.

Delays in decisions and implementation of recommendations: Since the 3(21) fiduciary is only able to make recommendations, the decision-making power remains with you.  (Note: This is listed in the Pro column, but it’ can also wind up in the con column. The reason being, “This process may cause delays in implementing those recommendations, and that delay may expose plan participants to potential downside they might not otherwise be exposed to,” Mr. Carosa wrote.

It introduces potential conflicts of interest: As Mr. Carosa pointed out, “It’s too easy for a plan sponsor to place corporate interests ahead of employee best interests. This may not be intentional or malicious, but it is a possible conflict-of-interest that most plan sponsors wouldn’t tolerate in their service providers.”

You have to make time to manage another service provider: Not fully delegating investment responsibilities means you still have to oversee the 3(21). This includes developing an Investment Policy Statement (IPS) for all plan fiduciaries to follow, as well as scheduling and attending regular retirement plan committee meetings. So outsourcing to a 3(21) fiduciary may not quite deliver the time savings and balance of responsibilities you need.

As Mr. Carosa noted, for many plan sponsors, the pros of hiring a 3(21) fiduciary often outweigh the cons. However, if the pendulum swings the other way, and the disadvantages and exposure of being a retirement plan fiduciary become too much, then it may be time to consider other arrangements, such as delegating all of the fiduciary responsibility to a 3(38). However, that introduces another challenge — you must relinquish even more fiduciary control. According to Mr. Carosa, for many retirement plan fiduciary plan sponsors, that isn’t an easy thing to do.

Steff Chalk

Steff Chalk

Managing Editor at 401kTV
Steff C. Chalk is Executive Director of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education. Steff also serves as Executive Director of The Plan Sponsor University and is current faculty of The Retirement Adviser University.
Steff Chalk

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