How 3(38) Investment Managers can Lessen Plan Sponsor Risk

Last Updated: September 10, 2014

Any employer who sponsors a retirement plan knows that along with providing a great benefit to employees, offering a retirement plan creates a level of risk for the employer/plan sponsor. Although there is no way to completely alleviate all risk associated with sponsoring a retirement plan, employers can be strategic in mitigating some of their inherent risk. One way employers should consider mitigating risk is by delegating investment decisions, such as selecting, monitoring and replacing the plan’s investments, to a 3(38) fiduciary.
ERISA defines a 3(38) fiduciary as an “investment manager”1, and allows only banks, insurance companies and registered investment advisers (like Pension Consultants) to act as 3(38) fiduciaries to qualified, employer-sponsored retirement plans. Once a 3(38) investment manager is named, the plan sponsor gives control and therefor a substantial amount of risk, over to the investment manager to bear. Of course, plan sponsors are never completely free from risk, and even if the decision is made to offload investment decisions to a 3(38) fiduciary, the plan sponsor is still required to monitor the investment manager in accordance with ERISA. If a plan sponsor decides to make any investment-related decisions separately from the 3(38) investment manager, the plan sponsor will take on the associated risk for that decision.
1Employee Retirement Income Security Act (ERISA) Section 3(38), Employee Benefits Security Administration
PCI’s archived blog entries are dated, the rules and statutes referenced may have changed. The analysis or guidance within these blog entries may have become stale, dated, or no longer accurate. PCI will not update or change these entries to reflect the latest analysis or development.


Pension Consultants, Inc.



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