As more investors rely on workplace plans to fund their retirement, plan sponsors find themselves working harder than ever to deliver optimal solutions to employees. Advisory firms focused on successfully engaging these plan sponsors understand the importance of addressing the specific needs of each plan.
Selecting the right level of support will help tailor service and deliver a personalized experience. Having the proper relationship is the foundation of long-term success and client satisfaction.
Plan sponsors can choose from two primary levels of advisory support: a 3(21) advisor and a 3(38) advisor. (Each is named after sections within ERISA federal law that sets standards for most retirement plans in the United States.)
In both instances:
- The plan sponsor retains a level of responsibility. While a 3(38) fiduciary assumes all responsibility for decisions concerning the plan's investments, the plan sponsor is still responsible for the prudent selection of that fiduciary.
- The advisory firm analyzes and monitors the plan's investment lineup.
- Both levels of service require high-quality expertise and execution.
- Specialized competencies, technologies and proprietary tools are needed to perform the function well.
There are, however, key differences between the two.
- A 3(21) fiduciary acts in an advisory capacity and does not have discretion over the investments in the plan's account.
- A 3(38) fiduciary provides investment management services, meaning they act as a plan manager and can make decisions regarding – and initiate changes to – the plan's holdings.
- 3(21) co-fiduciary responsibilities:It is able to make investment recommendations to the plan sponsor. Still, the plan sponsor's investment committee retains ultimate authority regarding investment decisions.
- 3(38) fiduciary responsibilities:The advisory firmcan implement changes to the plan's investment lineup.
Regardless of the differences and similarities, the right relationship is about control, competency and liability. The 3(21) relationship puts the fiduciary responsibility on the shoulders of the plan sponsor and requires more active participation of the plan sponsor in the day-to-day running of the plan. Assuming such duties requires the right personnel, expertise and resources.
Meanwhile, the 3(38) relationship takes the day-to-day management of the plan off the shoulders of the plan sponsor; as a result, it comes with higher expenses. Additionally, this type of relationship does not entirely absolve the plan sponsor of fiduciary liability but merely shares it with the advisory firm.
Whether a plan sponsor is looking for a 3(21) fiduciary to provide advisory services or a 3(38) fiduciary to provide investment management services to the plan, it's imperative to work with a firm possessing the resources, expertise and culture to make the relationship a successful one.
To learn more about SageView’s comprehensive plan sponsor support contact one of our specialists.