What is a 3(38) fiduciary?

Where the odd name comes from

The number is a citation. ERISA — the 1974 federal law governing workplace retirement plans — defines the term "investment manager" in section 3(38) of the statute (29 U.S.C. § 1002(38)). So "a 3(38) fiduciary" is shorthand for a professional appointed under that section: someone with discretionary authority to select, monitor and replace the plan's investments, who has acknowledged fiduciary status in writing.

Three requirements sit in the statute itself. A 3(38) investment manager must be a registered investment adviser, a bank, or an insurance company; must have the power to manage, acquire or dispose of plan assets; and must acknowledge in writing that it is a fiduciary to the plan. No written acknowledgment, no 3(38) — whatever the sales deck says.

What a 3(38) actually does

In a small-business 401(k), the 3(38)'s job is the investment layer, end to end:

• Builds and maintains the fund menu. Chooses the investment options participants see, under a written investment policy, and documents why each belongs there.
• Monitors continuously and replaces without asking. This is the defining feature — discretion. When a fund deteriorates or a cheaper share class becomes available, a 3(38) acts on its own authority. It does not send you a memo recommending action; it takes the action and reports it.
• Owns the fiduciary responsibility for those decisions. Because the manager exercises the discretion, ERISA places responsibility for the prudence of each investment decision on the manager rather than on you.

The practical consequence for an owner: the recurring investment-committee meeting where you — a person who runs a restaurant or a contracting firm — are asked to evaluate fund performance largely disappears. That work is precisely what you delegated.

What you keep — always

Here is the part responsible providers say out loud: hiring a 3(38) does not make you not a fiduciary. Under ERISA, the employer (or whoever appoints the manager) retains a duty to prudently select and continue to monitor the 3(38) itself (see DOL guidance on selecting and monitoring service providers). You also keep the duties that have nothing to do with investments: depositing employee contributions on time, paying only reasonable plan expenses, delivering required notices, maintaining the ERISA bond, and overseeing the recordkeeper and TPA.

A useful mental model: a 3(38) takes over the job most likely to get a small employer in trouble — investment selection and monitoring, the subject of most 401(k) fee litigation — and converts your remaining duty into something an owner can actually do: keep an eye on one professional, not on twenty mutual funds.

How it differs from the adviser you probably have

Many small plans have an "advisor" who is either a non-fiduciary broker or a 3(21) investment adviser — a co-fiduciary who recommends funds while you make every final decision and keep the decision-making responsibility. The distinction sounds technical and is anything but: it determines who is on the hook when a fund choice is challenged. We compare the two arrangements head to head in 3(21) vs 3(38): the liability difference.

One more entity worth distinguishing: a 3(16) plan administrator takes on administrative duties (filings, notices, some operational tasks) rather than investments. Some bundles include one; it is a different job from either investment role.

Questions to ask anyone claiming the title

1. "Will you acknowledge 3(38) status in writing, in the services agreement?" The statute requires it; the contract should say it plainly.
2. "Do you take discretion, or do you recommend and wait for my sign-off?" Sign-off means 3(21), not 3(38), whatever the marketing calls it.
3. "What's your process and how is it documented?" Ask to see a sample investment policy statement and a sample monitoring report.
4. "How are you paid, and by whom?" A fiduciary manager should be compensated by transparent fees, not fund revenue sharing. Ours are published on our fees page.
5. "What exactly stays on my plate?" A provider who answers "nothing" is either wrong about ERISA or hoping you won't check.

Aduna Capital serves as a 3(38) investment manager for small-business plans — the service is described at plan fiduciary services, and what the whole arrangement should cost sits in what a small-business 401(k) costs.

Common questions

Sources

• ERISA § 3(38), 29 U.S.C. § 1002(38) (definition of investment manager)
• ERISA § 405(d) (effect of appointing an investment manager)
• U.S. Department of Labor, Meeting Your Fiduciary Responsibilities, dol.gov/agencies/ebsa
• U.S. Department of Labor, Understanding Retirement Plan Fees and Expenses, dol.gov