Fiduciary Services 3(21) & 3(38)

The 21st definition (ERISA Section 3(21)) is the definition of fiduciary. A fiduciary is:

  1. Anyone who makes decisions about managing the plan or its investments, such as selecting the investment choices for participants or hiring persons who provide services to the plan;
  2. Anyone who makes decisions about administering the plan, such as determining eligibility of participants, providing benefits statements and ruling on benefits claims,
  3. Anyone who is paid to provide investment advice to a plan.

To meet the third category, one must provide investment advice, which currently includes recommendations to invest in, purchase or sell securities:

  • On a regular basis to the plan
  • Pursuant to a mutual agreement, arrangement or understanding, written or otherwise
  • That the services will serve as a primary basis for investment decisions
  • Individualized to the needs of the plan
  • For a fee

Anyone who is a fiduciary is a 3(21) fiduciary because that is simply the number of the section in ERISA that contains the overall definition. This includes the plan sponsor, trustee, plan administrator and investment fiduciary.

The 38th definition (ERISA Section 3(38)) is the definition of investment manager. An investment manager is:

  1. A special type of fiduciary, one who has been specifically appointed to have full discretionary authority, subject to the terms of the plan documents and its investment policy statement, to make the actual investment decisions for the plan.
  2. The investment manager may select, monitor, remove and replace the investment options offered under the plan.
  3. By properly appointing a monitoring an authorized 3(38) investment manager, a plan sponsor/trustee is relieved of all fiduciary responsibility for the investment decisions made by the investment professional.

The plan sponsor does have a continuing responsibility to monitor whether the investment manager is actually performing the services but need not second-guess its investment decisions.