PLANADVISER - January/February 2021 - 24

regulatory & compliance | investments
How 3(38) Advising Profits Clients
Investment management turns up inefficiencies, takes on some risk, and more
T
here are plenty of important life tasks that few people
choose to take on themselves, home renovations and
auto repair being two. While it might be admirable to
step up and assume responsibility for these missions that
are so critical to one's enterprise, most people lack the
requisite knowledge, skills or tools, and turn to experts.
So it is with defined contribution (DC) plan sponsors, which
have been increasingly handing off the crucial processes and
duties of selecting and monitoring their plan's investments
to their adviser and/or other consultants in so-called 3(38)
arrangements. According to the 2020 PLANSPONSOR Defined
Contribution Survey, at least 40% of respondents-all plan
sponsors-use a 3(38) adviser,
though 29% were unsure
whether their adviser served in 3(21) or 3(38) capacity.
" DC sponsors see their plans are increasingly important
for workers' retirement readiness, " says Michele Brennan, U.S.
DC solutions leader at Willis Towers Watson in Chicago. " They
realize the investments have to work harder and smarter. "
" The whole premise of the Employee Retirement Income
Security Act [ERISA] is to put participants on track to a
successful retirement, " says Nate Palmer, a managing
director at Wilshire Associates, in Santa Monica, California.
" If a sponsor doesn't have investment expertise in-house, he
should engage experts to create appropriate solutions. "
Defining Responsibilities
" 3(38) " refers to that section of ERISA that defines an investment
manager-a party that has been granted full discretion
by the sponsor over selecting, monitoring and replacing
the investment options in a plan. In contrast, 3(21) advisers
give advice and recommendations to sponsor clients on
their investments but do not take full responsibility; formal
decisions and fiduciary risk are left to the sponsor.
To be clear, through a 3(38) manager, sponsors can never
fully give up all fiduciary liability on investments. While they
are not responsible for the funds themselves, they do retain
an obligation to oversee the manager. Sponsors of all sizes
need to address the fiduciary responsibility in their investment
choices. " Your corner dry cleaner has the same ERISA
liability as a Fortune 100 company, " cautions Michael Annin,
senior managing director at Mesirow Financial in Chicago.
" There aren't separate rules for the micro-plan market, and
24 | planadviser.com January-February 2021 Art by Andrew Haener

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PLANADVISER - January/February 2021

Table of Contents for the Digital Edition of PLANADVISER - January/February 2021

Are You Leaving the Door Open?
A Question of Liability
How 3(38) Advising Profits Clients
The Tax Distinction
How to Choose a PEP
Plan Governance
Continuous Education
The Latest Word on ESG
ESG Investing Under ERISA
PLANADVISER - January/February 2021 - Cover1
PLANADVISER - January/February 2021 - Cover2
PLANADVISER - January/February 2021 - 1
PLANADVISER - January/February 2021 - 2
PLANADVISER - January/February 2021 - 3
PLANADVISER - January/February 2021 - 4
PLANADVISER - January/February 2021 - 5
PLANADVISER - January/February 2021 - 6
PLANADVISER - January/February 2021 - 7
PLANADVISER - January/February 2021 - 8
PLANADVISER - January/February 2021 - 9
PLANADVISER - January/February 2021 - 10
PLANADVISER - January/February 2021 - 11
PLANADVISER - January/February 2021 - 12
PLANADVISER - January/February 2021 - 13
PLANADVISER - January/February 2021 - Are You Leaving the Door Open?
PLANADVISER - January/February 2021 - 15
PLANADVISER - January/February 2021 - 16
PLANADVISER - January/February 2021 - 17
PLANADVISER - January/February 2021 - 18
PLANADVISER - January/February 2021 - 19
PLANADVISER - January/February 2021 - A Question of Liability
PLANADVISER - January/February 2021 - 21
PLANADVISER - January/February 2021 - 22
PLANADVISER - January/February 2021 - 23
PLANADVISER - January/February 2021 - How 3(38) Advising Profits Clients
PLANADVISER - January/February 2021 - 25
PLANADVISER - January/February 2021 - 26
PLANADVISER - January/February 2021 - 27
PLANADVISER - January/February 2021 - The Tax Distinction
PLANADVISER - January/February 2021 - 29
PLANADVISER - January/February 2021 - How to Choose a PEP
PLANADVISER - January/February 2021 - 31
PLANADVISER - January/February 2021 - Plan Governance
PLANADVISER - January/February 2021 - 33
PLANADVISER - January/February 2021 - 34
PLANADVISER - January/February 2021 - 35
PLANADVISER - January/February 2021 - Continuous Education
PLANADVISER - January/February 2021 - 37
PLANADVISER - January/February 2021 - The Latest Word on ESG
PLANADVISER - January/February 2021 - ESG Investing Under ERISA
PLANADVISER - January/February 2021 - 40
PLANADVISER - January/February 2021 - Cover3
PLANADVISER - January/February 2021 - Cover4
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