# 3(21) and 3(38) fiduciaries: who carries a 401(k) plan's investment decisions

URL: https://www.financialadvsr.com/guides/3-21-vs-3-38-fiduciary
Updated: 2026-10-10
Publisher: Financial ADVSR (https://www.financialadvsr.com)

A 3(21) fiduciary is an adviser that recommends investments for a 401(k) plan while the plan sponsor keeps the final decision, so both share fiduciary responsibility for the lineup. A 3(38) fiduciary is an investment manager, defined in ERISA section 3(38), that has discretion to select, monitor and replace plan investments itself and acknowledges its fiduciary status in writing. Hiring a 3(38) shifts liability for those investment decisions away from the sponsor, but the sponsor always remains responsible for prudently selecting and monitoring the manager.

Key points:
- ERISA section 3(21)(A) makes a person a fiduciary to the extent they exercise discretion over plan management or assets, give investment advice for a fee, or have discretionary responsibility for plan administration.
- ERISA section 3(38) defines an investment manager as a fiduciary, other than a trustee or named fiduciary, that can manage, acquire or dispose of plan assets, is a registered investment adviser, bank or qualifying insurance company, and acknowledges fiduciary status in writing.
- Under ERISA section 405(d), when an investment manager is properly appointed, no trustee is liable for that manager's acts or omissions, but the Labor Department treats selecting and monitoring service providers as fiduciary acts the sponsor cannot hand off.
- A 3(16) administrator takes on plan administration duties, such as Form 5500 filings and participant notices, rather than investment duties.
- The DOL's 408(b)(2) rule, effective July 1, 2012, requires service providers that expect at least $1,000 in compensation to disclose their services, fees and fiduciary status to the plan fiduciary.
- The Supreme Court held unanimously in Tibble v. Edison International (2015) that plan fiduciaries have a continuing duty to monitor investments and remove imprudent ones.
- CAPTRUST, a Raleigh, N.C., retirement plan and wealth advisor, said it topped $1 trillion in total client assets as of June 30, 2024.

## What does ERISA section 3(21) say?

Section 3(21)(A) of the Employee Retirement Income Security Act is the general definition of a fiduciary. It is functional, meaning a person becomes a fiduciary by what they do, not by their title. The provision has three prongs: a person is a fiduciary to the extent they exercise discretionary authority or control over plan management or plan assets, render investment advice about plan assets for a fee or other compensation, or have discretionary authority or responsibility in plan administration, according to Labor Department advisory opinions interpreting the section.

In the 401(k) market, a "3(21) fiduciary" usually means an adviser that falls under the investment advice prong. The adviser recommends funds for the plan menu, reviews them and suggests changes, but the plan sponsor or its investment committee decides whether to act on the advice. Because the adviser is giving fiduciary advice, it shares liability for imprudent recommendations; because the sponsor makes the call, the sponsor keeps responsibility for the decisions themselves.

## What does ERISA section 3(38) say?

Section 3(38) defines an "investment manager." As quoted in a Labor Department advisory opinion, it is a fiduciary, other than a trustee or named fiduciary, that has the power to manage, acquire or dispose of plan assets; is a registered investment adviser, a bank or a qualifying insurance company; and has acknowledged in writing that it is a fiduciary with respect to the plan.

In practice, a 3(38) manager takes discretion over the investment lineup. It chooses the funds on the menu, monitors them and replaces them without needing the sponsor's sign-off on each change. The written acknowledgment matters: an adviser that has not accepted 3(38) status in writing does not meet the definition, regardless of how its marketing describes it.

## What responsibility shifts to a 3(38) investment manager, and what stays with the sponsor?

ERISA section 405(d)(1) provides that if an investment manager has been appointed under the plan's procedures, no trustee is liable for that manager's acts or omissions. Section 405(d)(2) adds that this does not relieve a trustee of liability for its own acts. The statute refers to trustees; NAPA has reported that in Perez v. WPN Corp., a federal district court in Western Pennsylvania read the protection to cover named fiduciaries that properly appointed an investment manager, while refusing to dismiss the Labor Department's claim that the plan committee failed to monitor that manager.

What the sponsor cannot hand off is the decision to hire the fiduciary and the duty to keep watching it. The Labor Department says that selecting a service provider is itself a fiduciary act that must be done prudently and documented, and that fiduciaries must also monitor providers at reasonable intervals. The department adds that cost is one factor, and that fiduciaries are not always required to pick the cheapest provider.

The sponsor also keeps decisions outside the 3(38) mandate. A manager hired to run the fund lineup does not, by that appointment alone, take on recordkeeper selection, plan design, payroll remittance or participant communications. Those stay with the sponsor or with whichever provider is hired for them.

## What is a 3(16) administrator?

Section 3(16) of ERISA defines the plan administrator as the person designated by the plan document or, if no one is designated, the plan sponsor. A 3(16) service provider takes over some or all of those administrative duties. According to NAPA, typical 3(16) duties include filing Form 5500, approving participant transactions such as loans and distributions, hiring the plan auditor and sending required participant notices.

A 3(16) arrangement addresses administration, not investments, so it is often paired with a 3(21) or 3(38) adviser. As with an investment manager, NAPA notes that the sponsor remains responsible for prudently selecting and monitoring the 3(16) provider. A 3(16) fiduciary is also different from a third-party administrator that performs services without taking on fiduciary responsibility.

## How does 408(b)(2) fee disclosure apply to plan advisors?

ERISA's prohibited transaction rules would otherwise bar a plan from paying a service provider, so service arrangements depend on the exemption in section 408(b)(2) for reasonable contracts and reasonable compensation. The Labor Department's 408(b)(2) regulation, codified at 29 CFR 2550.408b-2 and finalized in February 2012, conditions that exemption on covered service providers giving the responsible plan fiduciary written disclosures.

According to law firm Littler, the rule applies to providers that reasonably expect at least $1,000 in compensation and took effect July 1, 2012. Covered providers include those acting as ERISA fiduciaries or as registered investment advisers. The regulation requires a description of the services and of direct and indirect compensation, and an investment adviser must state whether it is a fiduciary under section 3(21) and, if applicable, an investment manager under section 3(38). That disclosure is how a sponsor can confirm which role an adviser has accepted.

The sponsor's duty is to review those disclosures and judge whether the fees are reasonable for the services provided. The Labor Department's guidance on monitoring providers includes reviewing the fees they actually charge.

## How has excessive-fee litigation shaped these decisions?

Several Supreme Court decisions frame the risk. In Tibble v. Edison International, decided unanimously on May 18, 2015, the Court held that ERISA fiduciaries have a continuing duty to monitor plan investments and remove imprudent ones, separate from the duty to choose them prudently, according to Skadden. In Hughes v. Northwestern University, decided unanimously on Jan. 24, 2022, the Court vacated the dismissal of participants' fee claims and said the lower court erred in relying on participants' ability to choose their own investments to excuse allegedly imprudent decisions by the fiduciaries, according to law firm Kohrman Jackson & Krantz.

In Cunningham v. Cornell University, decided April 17, 2025, the Court held that participants alleging a prohibited transaction need only plead the elements of the transaction, and that the plan fiduciaries bear the burden of raising exemptions such as reasonable compensation as a defense, according to Sidley Austin. The case involved recordkeeping fees.

Filings remain frequent. Mayer Brown, which tracks excessive-fee suits against defined contribution plans, counted 43 filed in 2023 and 47 in 2024, and 51 filed in 2025 as of its October 2025 analysis. A 3(38) appointment does not insulate a sponsor from these claims if the sponsor chose or monitored the manager imprudently.

## Who provides 3(21) and 3(38) services, and how is the business consolidating?

Fiduciary services are sold by specialist retirement plan advisors, broker-dealer and RIA representatives, recordkeepers and dedicated 3(38) and 3(16) firms. A growing share of the plan advisory market sits with multi-office firms that have bought independent plan advisors, often called aggregators.

CAPTRUST is the largest example. The firm, founded in 1997 and based in Raleigh, N.C., said it passed $1 trillion in total client assets across retirement plan and individual wealth clients as of June 30, 2024, up about 17% from $852 billion at the end of 2023, according to PlanAdviser. NAPA's 2024 ranking of top multi-office DC advisor firms listed CAPTRUST with 207 retirement plan advisors and about $662 billion in DC plan assets as of Dec. 31, 2023, alongside firms such as SageView (175 advisors, about $173 billion) and NFP (106 advisors, about $191 billion).

PlanAdviser has reported that CAPTRUST's growth has come partly through many years of acquisitions, most recently in wealth management but also including retirement plan advisory firms.

## How should a plan sponsor choose between a 3(21) and a 3(38)?

The main question is who should make investment decisions. A sponsor with an engaged committee that wants to keep control of the menu may prefer a 3(21) adviser, accepting that it shares responsibility for the decisions it makes. A sponsor with limited time or investment expertise may prefer a 3(38) manager, accepting less control in exchange for shifting liability for the lineup.

Either way, the sponsor should document the selection process, compare candidates on qualifications, services and fees, confirm the role in the written agreement and the 408(b)(2) disclosure, and set a schedule for reviewing the provider, steps the Labor Department describes in its guidance on working with service providers. Sponsors also decide separately whether to outsource administration to a 3(16) provider.

This guide is general information, not legal or investment advice. Plan sponsors should consult ERISA counsel about their own plan.

## Questions

**What is a 3(21) fiduciary?** In the 401(k) market, a 3(21) fiduciary is an adviser that gives fiduciary investment advice to the plan for a fee while the plan sponsor keeps the final decision. The adviser and sponsor share fiduciary responsibility for the investment lineup.

**What is a 3(38) fiduciary?** A 3(38) fiduciary is an investment manager as defined in ERISA section 3(38): a registered investment adviser, bank or qualifying insurance company with discretion over plan assets that has acknowledged its fiduciary status in writing.

**Does hiring a 3(38) eliminate the sponsor's liability?** No. Under ERISA section 405(d), a properly appointed investment manager takes on liability for its own investment decisions, but the sponsor remains responsible for prudently selecting and monitoring the manager.

**What does a 3(16) fiduciary do?** A 3(16) provider takes on plan administration duties, such as filing Form 5500, approving distributions and loans, and sending participant notices. It does not manage investments.

**What is 408(b)(2) disclosure?** It is the Labor Department rule, effective July 1, 2012, that requires plan service providers expecting at least $1,000 in compensation to disclose their services, fees and fiduciary status to the plan fiduciary.

**Can an adviser serve as both a 3(21) and a 3(38)?** An adviser can offer both services, but the written agreement and 408(b)(2) disclosure for a given plan should state which role it is taking. A firm is a 3(38) only if it meets the statutory definition and acknowledges fiduciary status in writing.

Sources:
- U.S. Department of Labor: Advisory Opinion 1982-30A (https://dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/advisory-opinions/1982-30a.pdf)
- U.S. Department of Labor: Advisory Opinion 2005-23A (https://www.dol.gov/index.php/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/2005-23a)
- Legal Information Institute: 29 U.S. Code § 1105: Liability for breach of co-fiduciary (https://www.law.cornell.edu/uscode/text/29/1105)
- U.S. Department of Labor: Working With Service Providers (https://www.dol.gov/agencies/ebsa/employers-and-advisers/small-business-owners/working-with-service-providers)
- U.S. Department of Labor: Tips for Selecting and Monitoring Service Providers (https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/fact-sheets/tips-for-selecting-and-monitoring-service-providers.pdf?lang=es)
- NAPA: Case of the Week: Appointing an ERISA 3(38) Investment Manager (https://www.napa-net.org/news/2019/2/case-week-appointing-erisa-338-investment-manager/)
- NAPA: Case of the Week: What is a 3(16) Plan Administrator? (https://www.napa-net.org/news/2019/2/case-week-what-316-plan-administrator/)
- Legal Information Institute: 29 CFR § 2550.408b-2: General statutory exemption for services or office space (https://www.law.cornell.edu/cfr/text/29/2550.408b-2)
- Littler: DOL Issues Final Fee Disclosure Rule (https://www.littler.com/news-analysis/asap/dol-issues-final-fee-disclosure-rule)
- Skadden: Supreme Court Recognizes ERISA Fiduciary Duty to Monitor Plan Investments (https://www.skadden.com/insights/publications/2015/05/supreme-court-recognizes-erisa-fiduciary-duty-to-m)
- Kohrman Jackson & Krantz: Supreme Court Issues Opinion in Hughes v. Northwestern University ERISA Case (https://kjk.com/2022/01/28/supreme-court-issues-opinion-in-hughes-v-northwestern-university-erisa-case/)
- Sidley Austin: Supreme Court Lowers Bar for Pleading Prohibited Transactions Under ERISA (https://www.sidley.com/en/insights/newsupdates/2025/04/supreme-court-lowers-bar-for-pleading-prohibited-transactions-under-erisa)
- Mayer Brown: The Evolution of Defined Contribution Plan Class Action Litigation in 2025 (https://www.mayerbrown.com/en/insights/publications/2025/10/the-evolution-of-defined-contribution-plan-class-action-litigation-in-2025)
- PlanAdviser: CAPTRUST Tops $1T in Total Assets (https://www.planadviser.com/captrust-tops-1t-total-assets/)
- NAPA: Top DC Advisor Multi-Office Firms 2024 (https://www.napa-net.org/top-dc-advisor-multi-office-firms-2024)