ERISA §3(21) and §3(38) Fiduciary Capabilities
Fiduciary Capital Management LLC provides retirement plan sponsors and investment committees with a choice between collaborative fiduciary guidance and delegated discretionary investment management.
The Appropriate Model Depends on How Much Authority the Sponsor Wishes to Retain
Selecting a fiduciary structure is an important retirement-plan governance decision. The appropriate arrangement depends on the sponsor’s internal expertise, committee resources, desired level of control and approach to risk management.
Under an ERISA §3(21) arrangement, Fiduciary CM® provides fiduciary investment guidance and documented recommendations while the plan sponsor or investment committee retains final investment authority.
Under an ERISA §3(38) arrangement, Fiduciary CM® may accept discretionary authority to select, monitor and replace plan investments within the scope of the written agreement.
ERISA §3(21) and §3(38) Fiduciary Services
Both arrangements involve fiduciary services, but they differ significantly in investment authority, implementation and sponsor involvement.
| Feature | Collaborative ERISA §3(21) Investment Fiduciary | Delegated ERISA §3(38) Investment Manager |
|---|---|---|
| Service Structure | Non-discretionary fiduciary guidance | Discretionary investment management |
| Investment Authority | Fiduciary CM® provides analysis and recommendations. | Fiduciary CM® receives authority defined in the written agreement. |
| Final Investment Decision | Plan sponsor or investment committee | Fiduciary CM® for delegated investment responsibilities |
| Investment Changes | Sponsor or committee approval is required before implementation. | Fiduciary CM® may implement changes within the agreed scope of authority. |
| Monitoring Structure | Collaborative review with sponsor or committee involvement | Fiduciary CM® monitors delegated investment responsibilities. |
| Sponsor’s Continuing Role | Reviews recommendations and retains investment decision-making authority | Prudently selects and monitors the appointed investment manager |
| Governance Style | Active and collaborative oversight | Delegated investment authority |
| Generally Appropriate For | Sponsors that wish to remain actively involved in investment decisions | Sponsors that prefer to delegate designated investment-management responsibilities |
Fiduciary status, authority and responsibilities are determined by ERISA, applicable law and the specific terms of the written engagement agreement. Delegating investment authority does not eliminate the sponsor’s responsibility to prudently select and monitor the appointed service provider.
Choose the Level of Investment Authority That Fits Your Plan
Fiduciary CM® works with plan sponsors to establish a service structure consistent with their governance preferences, committee capabilities and written plan process.
Investment Fiduciary
Fiduciary CM® provides documented investment analysis, monitoring and recommendations. The plan sponsor or investment committee reviews the recommendations and retains final investment decision-making authority.
- Investment performance benchmarking
- Investment Policy Statement support
- Investment-menu monitoring
- Watch-list identification
- Fund-replacement recommendations
- Manager and investment due diligence
- Committee reporting and documentation
- Meeting participation and governance support
Investment Manager
When appointed under a written agreement, Fiduciary CM® may accept discretionary authority to select, monitor and replace designated plan investments within the agreed scope of responsibility.
- Investment selection and implementation
- Ongoing performance and risk evaluation
- Manager and fund due diligence
- Investment-menu construction
- Watch-list administration
- Investment-replacement decisions
- Formal documentation of decisions
- Recurring sponsor and committee reporting
A Documented Framework for Retirement Plan Investments
Regardless of the selected fiduciary structure, the investment process is designed to support consistency, documentation and ongoing plan governance.
Review Plan Objectives
Evaluate plan demographics, investment-menu structure, participant needs, committee priorities and existing governance documents.
Establish Evaluation Criteria
Define benchmarks, peer groups, risk measures, qualitative factors and watch-list standards.
Evaluate Investments
Review performance, expenses, risk, style consistency, manager organization and the investment’s role in the plan.
Identify Required Action
Determine whether an investment remains appropriate, requires monitoring or should be considered for replacement.
Document the Process
Maintain written records of reviews, recommendations, decisions, approvals and material investment changes.
Monitor and Report
Provide recurring investment reporting and update the sponsor or committee regarding material developments.
Support for a Repeatable and Defensible Governance Process
Services may be tailored to the plan’s size, investment structure, committee resources and selected fiduciary model.
Investment Policy Statement
Assistance developing, reviewing and monitoring the plan’s Investment Policy Statement and related criteria.
Performance Evaluation
Benchmark, peer-group and risk-adjusted analysis to help evaluate investment results in context.
Qualitative Due Diligence
Review of manager organization, personnel, process, philosophy and material changes.
Watch-List Protocols
Defined standards for identifying, documenting and monitoring investments requiring additional review.
Committee Reporting
Organized reports designed to support informed review, discussion and retirement-plan governance.
Decision Documentation
Written records supporting investment recommendations, decisions, replacements and committee actions.
Delegation Does Not Eliminate Plan Governance
Engaging a fiduciary service provider may help a sponsor establish a more structured investment process, but the sponsor continues to have important responsibilities.
Plan sponsors should maintain a prudent process for:
- Selecting qualified plan service providers
- Understanding the provider’s fiduciary capacity
- Reviewing the scope of delegated authority
- Monitoring services and performance
- Evaluating fees and potential conflicts
- Maintaining appropriate plan and committee records
- Following plan documents consistent with ERISA
- Addressing responsibilities not delegated by agreement
Fiduciary CM® works with sponsors and committees to clarify the investment-governance responsibilities included within the engagement.
A Fiduciary Model Designed Around Your Plan
Fiduciary CM® works collaboratively with plan sponsors to determine which engagement structure best aligns with the plan’s governance needs.
Oversight Preference
Determine how actively the sponsor or committee wants to participate in investment decisions.
Committee Expertise
Consider the investment knowledge, experience and availability of committee members.
Operational Capacity
Evaluate the internal resources available for investment review, approval and documentation.
Documentation Standards
Establish a repeatable process for monitoring, reporting and recording fiduciary decisions.
Discuss the Appropriate Fiduciary Structure for Your Plan
Schedule an introductory consultation to discuss your retirement plan, current governance process and whether a §3(21) or §3(38) fiduciary arrangement may better align with your committee’s needs.
Important Disclosure
Fiduciary status under ERISA is determined by applicable law, the functions performed and the terms of the written engagement. Services are provided pursuant to an agreement specifying the fiduciary capacity, scope of authority and responsibilities of the parties.
Appointment of an ERISA §3(21) fiduciary or §3(38) investment manager does not eliminate all fiduciary responsibilities of the plan sponsor, named fiduciary, trustee or investment committee. Plan fiduciaries remain responsible for duties not delegated and for prudently selecting and monitoring service providers.
Investment performance evaluation, benchmark comparisons, peer-group analysis and watch-list criteria are components of a fiduciary process and do not guarantee future performance or prevent investment losses. All investing involves risk, including the possible loss of principal.
Participant education services are educational in nature unless separately contracted and provided as individualized fiduciary investment advice. Fiduciary Capital Management LLC does not provide tax or legal advice. Plan sponsors should consult qualified ERISA counsel regarding their specific circumstances.
Advisory services are offered through Fiduciary Capital Management LLC, an SEC-registered investment adviser. Registration does not imply a particular level of skill or training.