Fiduciary Role & Responsibilities

Fiduciary Role & Responsibilities

Q: What's the difference between a 3(21) and 3(38) fiduciary, and which should I recommend?

A: A 3(21) fiduciary offers investment advice but the plan sponsor retains ultimate decision-making authority and liability. A 3(38) fiduciary has full discretionary control over investment decisions and assumes the associated liability, relieving the sponsor. Four factors to consider before recommending a role:

1. The sophistication of the sponsor's governance structure, thin committees with limited investment expertise may not be well-suited to a 3(21) relationship.
2. Plan size and complexity.
3. The sponsor's appetite for fiduciary liability.

Q: What fiduciary role(s) does Betterment play?

A: As limited 3(16) plan administrator, Betterment handles the agreed-upon operational and administrative fiduciary responsibilities: annual compliance testing (ADP/ACP, top-heavy), calculating contributions, preparing signature-ready Form 5500s, and delivering audit packages. This offloads significant administrative burden and liability from the plan sponsor.

On the investment side, Betterment offers a turnkey 3(38) fund lineup or supports advisors in a 3(21) or 3(38) role on an open-architecture basis.

Q: Does the plan sponsor still have fiduciary responsibility even if Betterment is the 3(16)?

A: Yes. The plan sponsor always retains some fiduciary responsibility under ERISA, including the obligation to select and monitor service providers and to ensure plan fees are reasonable. Delegating fiduciary functions reduces but does not eliminate sponsor liability. The specific scope of what Betterment assumes should be clearly defined in plan documents.