What Is an ERISA 3(38) Advisor and How This Helps a 401(k) Plan?

By ShareBuilder 401k

Every employer takes on fiduciary duties in providing 401(k) benefits for employees at their company. One that can be onerous and likely intimidating, is knowing the rules about the investment offering that can be made available to employees. This includes determining the investment roster, monitoring it ongoing, making and documenting changes, regulatory requirements, and more. Many employers aren’t investment experts, and they don’t want or plan to be. There is a pretty easy solve for employers, so let’s quickly dive in so you have the insights to determine the best fit for your company’s needs.

What Is an ERISA 3(38) Advisor?
The ERISA 3(38) advisor takes on the investment management role for your company in managing the investment options made available in your plan (full discretion of selection, ongoing monitoring and replacing of investments offered). And to clarify from the get-go, the ERISA 3(38) Advisors takes on the fiduciary duty and liability for your firm for these investment manager duties. These duties include fund roster made available in your plan to your employees and the ongoing monitoring and adjustments.

The employer, also known as the plan sponsor, relinquishes discretion and influence in the roster decisions. However, the plan sponsor monitors the work of the advisor to ensure the 3(38) is performing its duties in line with your advisory agreement and investment policy of the 401(k) plan. The advisor should make this easy for you by providing reports, often quarterly, of all that’s occurring, and any changes being made and why.

It gets better. The plan sponsor(s) is protected from suits and liability for investment roster decisions, and this service saves the company the time, energy, and internal costs of managing the investment roster.

Identifying Top ERISA 3(38) Advisors
Top ERISA 3(38) advisors have experts including CFAs (Chartered Financial Analyst®) that make up the Investment Committee overseeing and performing the analysis to find the right options for your plan. They will have proprietary models, leverage modern portfolios theory, algorithms, access to in-depth industry investment and economic data and other tools to help construct your investment roster. They will provide regular reports showcasing the analysis and reasons for decisions. These advisors will have clear investment policies, investment philosophy, and management procedures.

For most businesses to have this sort of access and expertise internally is not to be expected and likely expensive too if they did. When you have a top ERISA 3(38) on your plan, everyone can benefit by feeling confident in having a great fund line-up to help build bigger and better nest eggs as well as provide the employer important fiduciary protections.

Lastly, know that many 401(k) advisors are not ERISA 3(38) advisors. They leave all or a good chunk of the duties and fiduciary liability on the employer. Also, some advisors may be required to work with only a specific fund provider’s offering vs. looking at the universe of providers and comparing all investment options in each asset class that meet criteria in finding the right option.

Just know if your provider is an ERISA 3(38) Advisor and ask for the investment policy, philosophy, and example analysis reports. If that all looks good, you’re in a good spot. If not, this is definitely something important to consider to up your 401(k) roster and company protections. All ShareBuilder 401k plans include ERISA 3(38) Advisory services as part of our bundled, full-service offering.

Meet the Author

Our low-cost 401k plans are easy to setup online and are supported by our 401k advisors and specialists. ShareBuilder 401k serves small business and medium-sized companies, as well as the self-employed. We offer Roth 401k, Safe Harbor 401k, Traditional 401k, and Solo 401k options. Your 401k plan is paired with investment management expertise and employee education to help you save more.