If you don’t feel that you have the in-depth financial knowledge necessary to manage your company’s 401(k) portfolio, you aren’t alone.
According to a Charles Schwab survey, 52% of 401(k) plan managers indicated they don’t have the time, interest or knowledge to manage their 401k portfolio. Additionally, 56% indicated they either aren’t aware of or don’t review plan-related education material.
Many companies prefer to work with a retirement plan advisor who is able to lift the majority of the investment responsibilities from the plan sponsor. A 3(38) 401(k) retirement plan advisor, such as Rebalance, is an ideal solution for plan sponsors that don’t have the time or want to be responsible for their 401(k) plan’s investments.
An extra added bonus to working with a 3(38) advisor is that they shoulder the fiduciary responsibilities, taking them away from the plan sponsor and onto themselves.
However, you must confirm that the retirement plan advisor that you work with is a 3(38) plan advisor vs other types of plan advisors available in the marketplace. This is because only 3(38) plan advisors completely take over the investment and fiduciary responsibilities for plan sponsors.
Learn more about the types of retirement plan advisors, and the benefits of working with a 3(38) investment fiduciary, via this 401(k) Specialist piece by John Sullivan.
ERISA 3(38) and 3(21)—What’s the Difference?
While involving a 3(38) ERISA manager means the sponsor and advisor can outsource their fiduciary responsibility, there’s a catch
By John Sullivan
Is it surprising or scary that too many 401k advisors are still unfamiliar with ERISA terms like 3(38), 3(21) and 3(16)?
Probably both.
It’s a reason a session dedicated to the topic drew so much interest at That 401(k) Conference at Coors Field in Denver Friday morning.
Hosted by ERISA attorney Ary Rosenbaum and presented by Lyle Himebaugh of Granite Group Advisors, it explained the key differences between a 3(21) and 3(38) advisor.
More specifically:
3(21) Co-Fiduciary – “Help me”
- Shared fiduciary liability between the client and advisor for the plan investments.
- The 3(21) recommends the selection and replacement of plan investment options, but the plan sponsor must approve changes.
- A 3(21) is for plan sponsors that are comfortable assuming investment fiduciary liability.
3(38) Investment Fiduciary – “Do it for me”
- Majority of investment responsibilities are lifted from the plan sponsor and assumed by the 3(38) advisor.
- The 3(38) advisor is responsible for the investment selection, monitoring and replacement of plan options, and the plan sponsor is informed before any changes are made.
- A 3(38) advisor is for plan sponsors that don’t have the time or want to be responsible for the plan’s investments.
Referring to a 2017 survey from Charles Schwab, Himebaugh noted that 52% of participants indicated they don’t have the time, interest or knowledge to manage their 401k portfolio. Additionally, 56% indicated they either aren’t aware or don’t review plan-related education material.
For this reason, he recommended using one fund manager in each of the major asset classes, as well as the creation of model options that make investing simple and easy for employees.
While involving a 3(38) ERISA manager means the sponsor and advisor can outsource their fiduciary responsibility, there’s a catch, according to Rosenbaum, and resides in the wording of “…if an investment manager is properly appointed.”
Plan sponsors still must approve the 3(38)-investment manager, and properly document the due diligence involved in doing so, something that too many plan sponsors fail to realize and another reason the hiring of an ERISA attorney is recommended.