What Is a 3(38) Investment Manager for a 401(k)?

A Section Section 3(38) manager is not simply an adviser willing to accept fiduciary language. ERISA gives the term a specific statutory meaning: the appointed professional must hold discretionary power over plan assets, satisfy one of the permitted regulatory-status tests, and acknowledge fiduciary status in writing. When properly appointed, that manager—not the committee—makes the investment decisions inside the delegated mandate.^[1][2]

The delegation can materially change liability.

It does not eliminate fiduciary responsibility.

The sponsor or named fiduciary still owns the decision to:

• choose the provider
• define the mandate
• approve the compensation structure
• monitor whether keeping the appointment remains prudent.

3(38) Is a Statutory Definition

ERISA Section 3(38) defines an:

investment manager.^[1]

The definition has three substantive elements.

1. Discretionary asset authority

The person must have power to:

• manage
• acquire
• dispose of

plan assets.^[1]

2. Qualifying regulated status

The person must fall into one of the statutory categories.^[1]

3. Written fiduciary acknowledgment

The appointee must acknowledge in writing that it is a fiduciary with respect to the plan.^[1]

All three matter.

A provider cannot manufacture statutory status through branding.

Discretion Is the Core Difference

Suppose an adviser reviews the menu and recommends:

Replace Fund A with Fund B.

Investment committee can:

• accept
• reject
• postpone

the recommendation.

The adviser may have fiduciary investment-advice status depending on the facts and current law.

But the committee still owns the investment decision.

That is not the same authority structure as discretionary investment management under the statute.

Discretionary Management Moves the Decision

Change the arrangement.

Manager is authorized to:

• select designated investment alternatives
• remove options
• replace share classes
• make changes without prior committee approval

within a defined written mandate.

Now the outside fiduciary holds the discretionary investment function.

The committee monitors the appointment.

It does not vote on every fund change.

That distinction is the reason to use a 3(38) structure.

Marketing Language Cannot Replace the Contract

A proposal might say:

"Full 3(38) fiduciary protection."

That phrase answers almost nothing.

Read the agreement.

Ask:

• Does the provider actually have discretion?
• Which assets are covered?
• Which decisions can it make without sponsor approval?
• Is the provider in a qualifying statutory category?
• Is fiduciary status acknowledged in writing?
• Does the plan authorize the appointment?
• Who votes proxies?
• Who selects the QDIA?
• Who controls brokerage-window policy?
• Who monitors fees?

The legal structure lives in authority.

Not the sales deck.

The First Statutory Element: Power Over Plan Assets

Section 3(38)(A) requires power to:

manage, acquire or dispose of any asset of a plan.^[1]

This is investment discretion.

The delegated authority can be broad or limited by mandate.

Examples:

Broad mandate

Manage the entire designated investment menu.

Narrow mandate

Manage one separately managed account.

Participant-level mandate

Manage an individual participant account after the participant appoints the professional under plan procedures.

The scope can vary.

Discretion cannot disappear.

Advice Without Authority Is Different

An investment professional can provide valuable fiduciary advice without becoming the investment manager for the decision.

That structure is commonly described in the 401(k) industry as:

3(21) advice.

The phrase refers to fiduciary status under ERISA Section 3(21), while:

3(38)

refers to the statutory investment-manager definition.^[1]

The practical question is:

Who has final authority?

3(21) vs. 3(38)

Do not choose between the structures by acronym.

Choose by desired authority.

The 2024 Advice Rule Did Not Create 3(38)

DOL issued a new Retirement Security Rule in 2024 addressing when investment advice creates fiduciary status.

That rule and associated amendments were vacated by federal court orders, with DOL publishing notice of vacatur in March 2026.^[13]

The Section 3(38) investment-manager framework is different.

It comes directly from ERISA's statutory definition and longstanding delegation provisions.^[1][2][3][4]

A change in the investment-advice rule does not erase the statutory manager category.

The Second Element: Qualifying Regulatory Status

Section 3(38)(B) identifies the types of persons or institutions that can qualify.^[1]

The principal categories are:

Federally registered investment adviser

Registered under the Investment Advisers Act of 1940.

Qualifying state-registered investment adviser

A state-registered adviser that falls within the statutory provision and satisfies the related DOL filing requirement.

Bank

As defined for this statutory purpose.

Qualifying insurance company

An insurer qualified under the laws of more than one state to perform the relevant investment-management services.^[1]

Not every financial professional fits the list.

A Broker-Dealer Label Alone Is Not the Test

A firm can be:

• broker-dealer
• consultant
• recordkeeper
• wealth manager
• financial planner

without automatically satisfying Section 3(38)(B).

The relevant question is the provider's legal status under the statute.

A firm may hold several registrations.

The appointment file should identify which legal status supports the statutory qualification.

State-Registered Advisers Have an Extra Detail

A qualifying state-registered adviser can fit Section 3(38), but the statute includes a filing condition involving the Department of Labor.^[1]

DOL regulation:

29 CFR 2510.3-38

sets out the exclusive method for satisfying that filing requirement.^[5]

This is easy to miss because the provider can be properly registered with a state and still need the federal ERISA filing step.

The Appointment File Should Verify Registration

Do not accept:

"registered adviser"

without checking.

Useful records can include:

• federal or state registration
• current Form ADV information
• disciplinary history
• ownership
• key personnel
• business continuity
• applicable DOL filing for state-registered status.

The appointing fiduciary does not need to become a securities regulator.

It does need a reasonable diligence file.

The Third Element: Written Fiduciary Acknowledgment

Section 3(38)(C) requires the appointee to acknowledge:

in writing

that it is a fiduciary with respect to the plan.^[1]

A verbal representation is not enough.

A website statement is not enough.

A proposal saying:

"fiduciary partner"

is not enough.

Put the acknowledgment in the governing agreement.

Better Language Identifies the Exact Capacity

The contract should state, in substance, that the provider:

• accepts appointment as investment manager under ERISA Section 3(38)
• acknowledges fiduciary status
• accepts discretionary authority over specified assets/functions.

That is stronger than:

"Provider may act as a fiduciary where applicable."

Conditional language can create ambiguity about whether the provider actually accepted the role.

The Plan Must Support the Appointment

ERISA Section 402(c)(3) says a plan may provide that a named fiduciary with responsibility for control or management of plan assets may appoint one or more investment managers to manage plan assets.^[2]

That means the authority chain should be checked before the contract is signed.

A clean structure is:

plan document → named fiduciary authority → investment-manager appointment → written management agreement → discretionary mandate.

INV-131 explains why governance authority should be traceable.

A Service Contract Cannot Rewrite the Plan

Suppose the adviser contract says:

"Provider is appointed as 3(38) manager."

But the plan's governing structure:

• does not authorize that appointment
• gives final investment discretion exclusively to a committee
• never delegates it.

The contract label does not solve the mismatch.

The documents need to be reconciled.

Define the Mandate Precisely

A 3(38) appointment should answer:

Assets

Which assets fall within delegated control?

Investments

Can it add or remove funds?

QDIA

Can it select or replace the default?

Share classes

Can it switch classes?

Brokerage window

Is it inside or outside the mandate?

Participant-level managed accounts

Can it manage individual accounts?

Proxy voting

Who owns shareholder-right authority?

Restrictions

Employer stock? Stable value? Annuities? Alternative assets?

Implementation

Can manager direct trustee/recordkeeper directly?

Reporting

What must manager provide to appointing fiduciary?

"Investment discretion" should not be a black box.

Delegation Can Be Partial

A plan does not have to choose:

all discretion or none.

Example:

3(38) manager controls:

• core menu
• QDIA
• share-class changes.

Committee retains:

• company stock policy
• self-directed brokerage window
• managed-account provider appointment
• plan-level provider selection.

That can work if the governing documents and contracts clearly define the split.

Ambiguous overlap is the real risk.

Trustee Authority Changes

ERISA Section 403 ordinarily places broad plan-asset management authority with the trustee, subject to statutory exceptions.^[3]

One exception applies when authority to manage, acquire or dispose of plan assets is delegated to one or more investment managers under the plan structure.^[3]

For those assets, discretionary investment authority moves to the appointed professional.

The trustee's role changes accordingly.

Section 405(d) Changes the Trustee's Responsibility

When an investment manager has been appointed under Section 402(c)(3), ERISA Section 405(d) says the trustee is generally not liable for:

• acts
• omissions

of the investment manager and has no obligation to invest or otherwise manage assets subject to that manager's authority.^[4]

This is a significant statutory allocation.

The trustee does not need to duplicate every manager decision.

The Trustee Still Owns Its Own Conduct

Section 405(d) does not relieve the trustee from liability for:

the trustee's own act.^[4]

Examples might include:

• failing to follow a proper manager direction
• executing an unauthorized transaction
• mishandling plan assets
• acting outside the trust agreement.

Delegation narrows roles.

It does not erase accountability.

The Sponsor's Duty Changes Too

DOL's current fiduciary guide says that when an employer appoints a qualifying investment manager, the employer remains responsible for:

selection

but is not responsible for each individual investment decision made under the delegated mandate, assuming the arrangement is properly structured.^[9]

The employer must monitor the appointment periodically.^[9]

This is the core trade.

Before 3(38)

Internal fiduciary makes investment decisions.

After 3(38)

Internal fiduciary decides whom to appoint and whether the appointment should continue.

Recent DOL Guidance Reaffirms the Structure

DOL Advisory Opinion 2025-04A addresses a defined contribution arrangement using a statutory investment manager.^[10]

The Department states that the plan's named fiduciary must:

• prudently select the provider
• appropriately monitor the selection at reasonable intervals.

After appointment, the outside fiduciary is responsible for prudent management of the delegated assets.

Assuming the appointing fiduciary properly performs its own duties, it is not liable for the appointee's acts or omissions except for potential co-fiduciary liability.^[10]

That is a useful current statement of the allocation.

"Monitor" Does Not Mean Re-Manage

A sponsor sometimes defeats the operational point of delegation by trying to approve every:

• trade
• fund change
• allocation
• proxy vote.

If the committee must independently redo every investment decision, the structure starts looking less like discretionary management.

Monitoring should focus on whether:

keeping this manager remains prudent.

What Should Ongoing Oversight Cover?

A useful monitoring file can include:

Legal status

• registration remains valid
• required DOL filing remains current where applicable
• written fiduciary acknowledgment remains in force.

Mandate compliance

• manager is acting within scope
• prohibited or restricted investments are avoided
• plan/IPS requirements are followed where applicable.

Investment process

• strategy
• risk
• portfolio construction
• implementation.

Performance

• benchmark-relative results
• risk-adjusted performance
• relevant market context.

Fees

• manager fee
• underlying investment expenses
• revenue sharing or outside compensation
• transaction costs where material.

Organization

• ownership
• key personnel
• compliance
• litigation/regulatory developments
• operational capability.

Plan fit

• service still matches plan size, participant needs and governance structure.

The point is not to produce a quarterly scorecard ritual.

It is to know when the original hiring thesis has changed.

A Bad Quarter Is Not a Fiduciary Breach

Suppose manager trails benchmark by:

6 percentage points

for one year.

That result deserves analysis.

It does not prove:

• imprudence
• breach
• bad appointment.

Ask:

• Was the strategy within mandate?
• Did risk behave as expected?
• Were fees reasonable?
• Did personnel change?
• Did portfolio construction drift?
• Was benchmark appropriate?

Investment outcomes fluctuate.

The fiduciary test is process.

Strong Performance Does Not End Monitoring

Manager outperforms for four years.

Then:

• ownership changes
• lead team leaves
• fees rise 40%
• regulatory action begins.

Trailing returns remain excellent.

The appointment can still require serious review.

Performance is evidence.

Not immunity.

Selection Due Diligence Should Be More Than Performance

At appointment, assess:

• statutory qualification
• investment philosophy
• track record
• team
• operational controls
• compliance history
• cybersecurity
• conflicts
• fees
• insurance
• reporting
• implementation
• termination.

Past returns are one data point.

The provider is being hired to exercise discretion over plan assets.

The diligence should match the responsibility.

Fees Remain a Sponsor-Level Issue

Delegating fund decisions does not mean the sponsor can ignore the manager's compensation.

The hiring arrangement itself is a fiduciary service-provider decision.

ERISA requires:

• prudent selection
• reasonable expenses
• conflict awareness.

INV-129 explains the 408(b)(2) service-provider disclosure framework.

408(b)(2) Applies to Fiduciary Service Providers

A covered service provider providing fiduciary services can fall squarely within the pension-plan disclosure regulation when the compensation threshold and other conditions are satisfied.^[8]

The responsible plan fiduciary should receive information about:

• services
• fiduciary status
• direct compensation
• indirect compensation
• related-party compensation
• manner of payment.^[8]

A 3(38) label does not make fees self-justifying.

Example: Manager Fee Looks Low, Underlying Cost Is High

Manager fee:

0.10%

Looks inexpensive.

But manager selects proprietary underlying investments averaging:

0.85%

and affiliate compensation flows through the structure.

The relevant economic question is not:

Is 0.10% reasonable?

It is:

What is the total cost, what conflicts exist, and what value does the plan receive?

The appointment and portfolio economics belong in the same review.

The Manager Cannot Set Its Own Fee Through Fiduciary Power

Section 408(b)(2) does not exempt fiduciary self-dealing under ERISA Section 406(b).^[8]

If the manager uses its fiduciary authority to cause the plan to pay itself additional compensation, conflict rules can arise.

The better structure separates:

• compensation negotiation
• investment discretion.

The appointing fiduciary should approve compensation through an independent prudent process.

The IPS Can Bind the Manager

When an investment policy applies to the manager, ERISA's document-following duty matters.

DOL guidance states that a fiduciary, including a statutory investment manager, should follow an applicable investment policy only insofar as the policy is consistent with ERISA.^[7]

This creates two boundaries.

Manager cannot casually ignore the IPS

The mandate matters.

Manager cannot blindly follow an imprudent rule

ERISA controls over a conflicting policy instruction.

INV-130 explains this problem from the committee side.

Example: IPS Requires Automatic Removal

IPS says:

remove every fund after three years of underperformance.

3(38) manager determines:

• underperformance reflects expected style cycle
• fees remain competitive
• manager team stable
• replacement would create worse risk exposure.

If literal adherence would be imprudent, the manager cannot defend an imprudent action by saying:

"the policy made us do it."

The manager's own fiduciary duty still applies.

Proxy Voting Usually Follows Delegated Investment Authority

Current DOL investment-duty regulation treats shareholder rights as part of managing stock investments.^[7]

Where authority over relevant assets has been delegated to an investment manager, the delegated fiduciary generally has exclusive authority to:

• vote proxies
• exercise shareholder rights

unless the plan, trust document or investment-management agreement validly reserves some or all of that authority to an authorized named fiduciary.^[7]

This should be explicit in the contract.

Proxy Authority Is Not a Clerical Detail

A manager deciding whether to vote a proxy must act under ERISA's fiduciary standards.^[7]

That fiduciary should consider:

• economic interests of plan participants
• costs
• relevant facts
• plan interests.

The sponsor should know who owns the function.

It does not need to re-vote every proxy after delegating the authority.

The Delegation Can Operate at the Plan-Menu Level

Common structure:

committee appoints a discretionary investment fiduciary

The mandate covers:

• fund lineup
• QDIA
• replacements
• share classes.

Participants then choose among the manager-selected menu.

This separates:

Plan fiduciary

Selects and monitors manager.

Delegated investment fiduciary

Selects and monitors menu.

Participant

Selects allocation among menu choices.

Each layer has different responsibility.

3(38) Can Also Operate at the Participant-Account Level

DOL's participant-disclosure guidance uses the term:

designated investment manager

for a qualifying investment manager made available by the plan to manage some or all of participants' individual accounts.^[12]

A participant can appoint that manager under the plan's procedures.

The appointed professional then makes investment decisions for that participant's account within the service.

This resembles a professional managed-account service.

Participant Appointment Does Not Make the Manager Nonfiduciary

Once the designated manager controls the participant's account, the manager is responsible for its own fiduciary investment decisions.

INV-132 explains the 404(c) causation point.

A participant choosing which manager to use does not automatically turn the manager's later imprudent decisions into the participant's responsibility.

Plan-Designated Managers Still Require Sponsor Review

If the plan chooses which managers are available to participants, the plan fiduciary should monitor those designated managers for continued suitability.

DOL's 404(c) regulation makes that point in its examples.^[12]

The sponsor chose the available manager set.

Participant choice from that set does not permanently freeze the designation decision.

A Participant Can Sometimes Choose a Manager Independently

A plan could allow a participant broader discretion to select an investment manager not designated by the plan.

The fiduciary consequences can differ from a plan-designated manager structure.

The actual plan terms determine:

• who selected the manager
• who must monitor the appointment
• what 404(c) relief may apply.

Do not collapse every participant managed-account arrangement into one model.

Investment Management and Recordkeeping Are Separate Roles

The role can be filled by a:

• separate RIA
• bank
• insurance company
• other qualifying statutory provider.

The recordkeeper can still handle:

• participant website
• transaction processing
• plan accounting
• statements.

The manager decides.

The recordkeeper implements according to its assigned role.

Combining the services under one corporate family does not eliminate the need to identify each legal capacity.

Investment Management and Trusteeship Are Separate Roles

ERISA's definition excludes a trustee or named fiduciary from the investment-manager definition as stated in Section 3(38), and the plan's appointment structure should be drafted carefully where one institution performs multiple roles.^[1]

The practical point:

do not assume "bank" means the bank is automatically both trustee and 3(38) manager for the same function.

Read the appointment documents.

Investment Management Is Not Plan Administration

The ERISA plan administrator handles a different statutory function involving:

• reporting
• disclosure
• administration.

The investment manager controls delegated investment assets.

One institution can provide multiple services.

The legal roles remain separate.

INV-080 explains the administrator role.

Co-Fiduciary Liability Still Exists

A proper 3(38) appointment narrows responsibility for investment decisions.

It does not erase Section 405(a).^[4][10]

An appointing fiduciary can still face liability when, for example, it:

• knowingly participates in another fiduciary's breach
• enables the breach through its own fiduciary failure
• knows of the breach and fails to make reasonable remedial efforts.^[4]

"Delegated" is not a license to ignore obvious misconduct.

Example: Manager Starts Violating the Mandate

Manager is prohibited from using private real estate.

Quarterly report shows:

18% of plan assets

moved into affiliated private real-estate vehicles.

Committee notices.

No action is taken.

The sponsor cannot defend later losses solely with:

"3(38) had discretion."

The facts now implicate:

• monitoring
• mandate compliance
• possible conflicts
• possible co-fiduciary issues.

Delegation did not eliminate the committee's own response duty.

Example: Committee Overrules the Manager

Contract gives the outside fiduciary discretion to remove funds.

The outside fiduciary decides to remove Fund A.

Committee says:

"Keep it. The CEO likes it."

The provider follows the instruction despite no contractual authority for committee override.

Now the responsibility map is blurred.

Either:

• manager had discretion
• committee retained discretion.

The governing documents should answer which.

Actual conduct should follow the answer.

Example: RIA Status Without Discretion

Provider:

• federally registered RIA
• acknowledges fiduciary status.

Contract says:

"All investment recommendations require committee approval."

Provider lacks final power to manage, acquire or dispose of plan assets.

For those recommendations, the statutory discretion element is missing.

RIA status + fiduciary acknowledgment is not enough.

Example: Provider Has Discretion but No Written Acknowledgment

Contract gives provider full investment authority.

Provider is federally registered RIA.

But no agreement or other writing contains the required fiduciary acknowledgment.

That is a serious Section 3(38) documentation defect.

The provider can still be a fiduciary under other ERISA provisions because it exercises control.

That does not mean the formal statutory investment-manager delegation has been established correctly.

Example: State RIA

Manager:

• not federally registered due to the federal/state allocation of adviser registration
• properly state registered
• holds investment discretion
• acknowledges fiduciary status.

The appointment file should also confirm the DOL filing condition required by Section 3(38)(B)(ii) and 29 CFR 2510.3-38.^[1][5]

Skipping that step can undermine the intended statutory status.

Example: One-Year Underperformance

The appointed manager:

• trails benchmark
• stays within mandate
• fees remain competitive
• team stable
• risk consistent
• investment thesis intact.

Prudent monitoring may support retention.

A sponsor does not satisfy fiduciary duty by firing every manager that underperforms temporarily.

That can create performance chasing.

Example: Organization Changes

The same firm later:

• is acquired
• loses lead portfolio team
• raises fees
• changes strategy
• receives regulatory sanctions.

Even strong trailing performance may no longer support:

continuing the designation.

The sponsor's fiduciary decision is the retention decision.

What Should the Appointment File Contain?

Plan authority

Plan provision permitting manager appointment.

Appointment resolution

Named fiduciary or committee action.

Agreement

Scope of discretionary authority.

Written acknowledgment

Explicit Section 3(38) fiduciary acceptance.

Regulatory status

RIA/bank/insurance-company basis.

State RIA filing

Where applicable.

408(b)(2)

Service and compensation disclosures.

Due diligence

Qualifications, performance, fees, conflicts, operations.

Investment policy

Applicable IPS and mandate.

Proxy rights

Who votes.

Insurance

Applicable fiduciary/professional coverage.

Monitoring framework

What the sponsor will review and how often.

Termination

Right and process to remove manager.

A complete file proves both:

why the provider qualified

and:

why the sponsor selected it.

What Should the Sponsor Monitor?

Monitoring should be specific enough to catch change.

Not so granular that the sponsor retakes the portfolio.

Questions to Ask Before Hiring

1. Which Section 3(38)(B) category qualifies the provider?
2. Will the provider acknowledge statutory investment-manager fiduciary status in writing?
3. Exactly what investment discretion transfers?
4. What remains with the committee?
5. Can the manager select proprietary investments?
6. How is total compensation calculated?
7. What indirect compensation exists?
8. Who controls the QDIA?
9. Who votes proxies?
10. How are fund changes implemented?
11. What reports will the sponsor receive?
12. What events must the manager notify the sponsor about?
13. What insurance applies?
14. Can the sponsor terminate on reasonable terms?
15. How does the appointment fit the plan document and IPS?

If those questions do not have clear answers, the fiduciary transfer is not yet clear.

3(21) Advice vs. 3(38) Management

A useful decision model:

Choose an advisory structure when

• committee wants to retain investment discretion
• internal fiduciaries want outside analysis
• committee can evaluate recommendations
• sponsor wants final control.

Choose 3(38) management when

• sponsor wants a qualified professional to make investment decisions
• internal committee does not want fund-by-fund discretion
• governance documents support delegation
• sponsor is prepared to monitor the appointment rather than re-decide the portfolio.

Neither structure is automatically superior.

The correct structure is the one the organization can actually govern.

A 3(38) Structure Can Be Worse If Nobody Monitors It

A weak committee sometimes sees delegation as:

"Outsource it and stop thinking about investments."

That is not the statutory model.

The sponsor's work becomes narrower, but more focused:

• Is the manager still qualified?
• Is the manager acting within mandate?
• Are fees still reasonable?
• Has the organization changed?
• Is continued appointment prudent?

Failing to ask those questions is not delegation.

It is abandonment.

A 3(38) Structure Can Also Fail If the Committee Will Not Let Go

The opposite sponsor says:

"The manager has discretion, but every fund change still comes to the committee for approval."

That can turn the manager into an adviser in practice.

If internal fiduciaries want final authority, document an advisory structure.

If the manager is supposed to hold discretion, let the agreement and conduct reflect that delegation.

Responsibility should follow reality.

Frequently Asked Questions

What does 3(38) mean?

It refers to ERISA Section 3(38), the statutory definition of an investment manager.^[1]

Is a Section 3(38) manager always a fiduciary?

Yes. Fiduciary status is part of the statutory definition, and the manager must acknowledge that status in writing.^[1]

Does any RIA qualify?

No.

RIA status can satisfy one part of the test. The provider also needs discretionary investment authority and written fiduciary acknowledgment, and the appointment must be properly structured.^[1][2]

Can a state-registered adviser qualify?

Yes, when the statutory conditions are satisfied, including the DOL filing requirement applicable to the state-registered category.^[1][5]

Can a bank qualify?

Yes, when it satisfies the statutory definition.^[1]

Can an insurance company qualify?

A qualifying insurance company can satisfy the statutory category.^[1]

Is a broker automatically a 3(38) manager?

No.

The statutory qualification and authority requirements control.

What is the biggest difference between 3(21) and 3(38)?

Discretion.

In a typical advisory structure, internal fiduciaries retain final investment authority. A statutory investment manager has discretionary authority within the delegated mandate.

Does the plan document need to permit the appointment?

ERISA Section 402(c)(3) permits a plan to provide for a named fiduciary to appoint investment managers. The plan's actual governing structure should support the appointment.^[2]

Does hiring a 3(38) manager eliminate sponsor fiduciary liability?

No.

The sponsor or named fiduciary retains prudent selection and continuing monitoring duties and can still face liability for its own breaches or under co-fiduciary rules.^[4][9][10]

Is the sponsor liable for every individual investment decision the manager makes?

When the appointment is properly structured and the appointing fiduciary fulfills its own duties, DOL states that the appointing fiduciary generally is not liable for the manager's individual investment acts or omissions, subject to co-fiduciary rules.^[9][10]

How often must the sponsor monitor the appointment?

DOL uses a reasonable-interval standard rather than a universal monthly, quarterly or annual mandate.^[6][10]

Does monitoring require approving every trade?

No.

That would undermine the distinction between discretionary management and advisory recommendations.

What happens to the trustee's role?

For assets subject to a properly appointed investment manager, Section 405(d) generally removes the trustee's obligation to manage those assets and protects the trustee from liability for the appointee's acts or omissions merely because the trustee holds plan assets.^[4]

Is the trustee protected from its own mistakes?

No.

Section 405(d) expressly preserves liability for the trustee's own acts.^[4]

Who votes proxies?

For assets delegated to an investment manager, current DOL regulation generally gives the manager proxy-voting and shareholder-right authority unless governing documents validly reserve that authority elsewhere.^[7]

Does the manager have to follow the IPS?

An applicable IPS can govern the manager, but ERISA controls. The manager should not follow an IPS provision when doing so would itself be imprudent or inconsistent with ERISA.^[7]

Do 408(b)(2) disclosures still matter?

Yes.

A fiduciary service-provider arrangement can be subject to the service and compensation disclosure rules.^[8]

Can participants appoint a 3(38) manager?

A participant-directed plan can make one or more designated Section Section 3(38) managers available to participants to manage some or all of their individual accounts.^[12]

Did the 2024 Retirement Security Rule create 3(38)?

No.

The 3(38) investment-manager framework is statutory and longstanding. DOL's 2024 Retirement Security Rule concerned investment-advice fiduciary status and was vacated in 2026.^[13]

The ROIStreet 3(38) Authority Test

Confirm the plan authorizes appointment of an investment manager → identify the named fiduciary with appointment authority → verify the provider will hold actual discretionary investment power → identify the statutory regulated-status category → verify federal or state adviser registration where applicable → for qualifying state advisers, verify the required DOL filing → obtain an explicit written Section 3(38) fiduciary acknowledgment → define the exact asset and decision mandate → separate retained committee authority from delegated manager authority → identify trustee implementation responsibilities → identify proxy-voting authority → collect and review 408(b)(2) compensation disclosures → benchmark fees and conflicts → document the prudent hiring decision → establish a monitoring process focused on continued suitability → review registration, personnel, strategy, mandate, performance, fees, conflicts and service → investigate material changes when they occur rather than waiting for the next calendar meeting → retain, renegotiate or replace the manager based on current facts → avoid retaking individual investment discretion unless the governance structure is intentionally changed

The value of a 3(38) structure is not that the sponsor can stop being a fiduciary.

It is that fiduciary responsibility can be divided more intelligently: a qualified professional owns the delegated investment decisions, while the sponsor owns the equally real decision of whether that professional should continue to have the authority.

Sources & References

1. Legal Information Institute / U.S. Code: 29 U.S.C. §1002(38) — Definition of Investment Manager — https://www.law.cornell.edu/uscode/text/29/1002
2. Legal Information Institute / U.S. Code: 29 U.S.C. §1102(c)(3) — Appointment of Investment Managers — https://www.law.cornell.edu/uscode/text/29/1102
3. Legal Information Institute / U.S. Code: 29 U.S.C. §1103(a) — Trustee Authority and Investment Managers — https://www.law.cornell.edu/uscode/text/29/1103
4. Legal Information Institute / U.S. Code: 29 U.S.C. §1105 — Co-Fiduciary Liability and Investment Managers — https://www.law.cornell.edu/uscode/text/29/1105
5. Electronic Code of Federal Regulations / Legal Information Institute: 29 CFR §2510.3-38 — State Registered Investment Adviser Filing Requirements — https://www.law.cornell.edu/cfr/text/29/2510.3-38
6. Electronic Code of Federal Regulations / Legal Information Institute: 29 CFR §2509.75-8 — Questions and Answers Relating to Fiduciary Responsibility — https://www.law.cornell.edu/cfr/text/29/2509.75-8
7. Electronic Code of Federal Regulations / Legal Information Institute: 29 CFR §2550.404a-1 — Investment Duties — https://www.law.cornell.edu/cfr/text/29/2550.404a-1
8. Electronic Code of Federal Regulations / Legal Information Institute: 29 CFR §2550.408b-2 — Service Provider Arrangements and Disclosures — https://www.law.cornell.edu/cfr/text/29/2550.408b-2
9. U.S. Department of Labor — Employee Benefits Security Administration: Meeting Your Fiduciary Responsibilities — https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/meeting-your-fiduciary-responsibilities
10. U.S. Department of Labor — Employee Benefits Security Administration: Advisory Opinion 2025-04A — https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/2025-04a
11. U.S. Department of Labor — Employee Benefits Security Administration: Information Letter 10-23-2014 — https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/information-letters/10-23-2014
12. U.S. Department of Labor — Employee Benefits Security Administration: Field Assistance Bulletin 2012-02R — https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2012-02r
13. U.S. Department of Labor — Employee Benefits Security Administration: Retirement Security Rule — Notice of Court Vacatur — https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/erisa/retirement-security/law-and-regulations

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