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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.
