Mitigating Risk: Working With an ERISA Section 3(38) Investment Manager

By Jessica Maldonado

More than 50% of retirement Plan Sponsors do not think of themselves as a fiduciary*

Are you an advisor working in a non-Fiduciary capacity?

Do you have the tools necessary to help your Plan Sponsors thrive?

When a retirement Plan Sponsor does not understand their role and responsibility to their Plan, they may be personally exposed to unwanted consequences. Under ERISA law, Section 3(38) allows a Plan Sponsor to shift the responsibility for the investments in a plan to a named investment manager. For advisors working in a non-Fiduciary capacity, adding a 3(38) investment manager to your offering may help increase your credibility and value, help protect your Plan Sponsors, and leave you free to focus on what you do best. 

ERISA Section 3(38) Investment Managers are fiduciaries that take:

  1. Discretion – and acknowledge their fiduciary status in writing,
  2. Authority – they are appointed, in writing by the Plan Sponsor, and
  3. Sole Responsibility for selection, monitoring and replacement of plan investment options.

By adding a 3(38) to your offering, you help your plan sponsors delegate the responsibility and liability of selecting, monitoring and replacing investments within a plan to a 3(38) investment manager fiduciary.

Fiduciary Outsourcing Model

RetirementPlans - Mitigating Risk with a 3-38 Investment Manager - FiduciaryOutsourcingModel

What Does a 3(38) Offer to Advisors?

  • Reporting evidence delivered to advisors and plan sponsors for due diligence and monitoring
  • Tools to enhance participant education programs
  • Ability to aid in process of selecting additional/alternate vendor partners (recordkeeper, TPA, and custodian)
  • Non-compete agreement to protect your relationships
  • Participant level advice materials delivered to advisor for use in strengthening relationships with participants
  • Notification to advisor of any rollover opportunities from departing participants

What Does a 3(38) Offer to Plans?

  • Fiduciary relief under ERISA Section 405(d)(1) from the plan investment selection, management and monitoring to a qualified prudent expert
  • Delivery of qualified default investment alternatives (QDIAs)
  • Management of professionally designed and managed model portfolios
  • Quarterly monitoring and ongoing due diligence
  • No more signatures required to add or remove positions since a 3(38) has full discretion
  • All plans are covered by the 3(38)’s ERISA bond in addition to the Plan’s ERISA bond
  • Audit support for all investment-related decisions

*Unified Trust 2009-2010 Survey


Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this content, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for you or your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Searcy Financial Services, Inc.

The content of this letter does not constitute a tax or legal opinion. Always consult with a competent professional service provider for advice on tax or legal matters specific to your situation. To the extent that a reader has any questions regarding the applicability of any specific issue discussed in this content, he/she is encouraged to consult with the professional advisor of his/her choosing.

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