Understanding fiduciary responsibility is an important part of managing a 401(k) plan, especially when evaluating whether a 3(21) or 3(38) fiduciary structure is the right fit for your company’s retirement strategy.

For many employers, fiduciary responsibility is one of the most confusing parts of managing a 401(k) plan.

Terms like “3(21) fiduciary” and “3(38) fiduciary” are often mentioned during advisor or recordkeeper conversations, but many plan sponsors are still unclear about what these arrangements actually mean and how fiduciary liability changes under each structure.

At Basic Capital, we believe plan sponsors should have a clear understanding of how fiduciary responsibilities are shared, delegated, and documented. The structure a company chooses can affect compliance oversight, investment decision-making, administrative complexity, and long-term retirement plan governance.

Why Fiduciary Structure Matters

Under ERISA, employers sponsoring a 401(k) plan have a legal obligation to act in the best interest of plan participants.

That includes responsibilities related to:

• Monitoring investments

• Reviewing plan fees

• Selecting service providers

• Overseeing plan administration

• Maintaining prudent fiduciary processes

Even when advisors or providers are involved, employers still retain certain oversight obligations.

The key difference between a 3(21) and 3(38) arrangement is how much investment responsibility is delegated and who ultimately carries fiduciary liability for investment decisions.

Understanding 3(21) Fiduciary Services

A 3(21) fiduciary acts as a co-fiduciary advisor.

Under this structure, the advisor provides investment recommendations and guidance, but the plan sponsor retains final authority over whether to accept or reject those recommendations.

In practice, that means:

• The advisor helps evaluate investments

• The advisor may assist with fund monitoring

• The employer still approves investment decisions

• Fiduciary liability remains shared

Many employers choose a 3(21) arrangement because it allows them to remain actively involved in plan oversight while receiving professional investment guidance.

However, plan sponsors should understand that responsibility is not fully transferred.

Under a 3(21) structure, employers still need to:

• Review investment recommendations carefully

• Document decision-making processes

• Maintain fiduciary oversight procedures

• Monitor advisor performance over time

For companies with internal investment expertise or active retirement committees, this structure may provide a comfortable balance between support and control.

Understanding 3(38) Fiduciary Services

A 3(38) fiduciary arrangement works differently.

Under a 3(38) structure, the investment manager assumes discretionary authority over selecting, monitoring, and replacing plan investments.

That means the 3(38) fiduciary:

• Makes investment decisions directly

• Oversees ongoing fund monitoring

• Handles investment replacements

• Assumes fiduciary liability for investment management decisions

For plan sponsors, this creates a greater level of delegation and can significantly reduce the administrative burden tied to investment oversight.

At Basic Capital, we often see growing employers explore 3(38) arrangements when:

• Internal investment expertise is limited

• HR teams want to reduce fiduciary complexity

• Retirement committees prefer simplified governance

• Companies want more consistent investment oversight

• Plan administration responsibilities are becoming harder to manage internally

It is important to note that employers still retain responsibility for prudently selecting and monitoring the 3(38) provider itself. Fiduciary responsibility is reduced, not eliminated entirely.

3(21) vs. 3(38): Key Differences for Plan Sponsors

While every retirement plan is different, many growing employers increasingly evaluate whether a more delegated fiduciary structure can help reduce administrative complexity and streamline long-term retirement governance.

What Plan Sponsors Should Evaluate in a Fiduciary Provider

Whether evaluating a 3(21) or 3(38) arrangement, plan sponsors should review more than marketing language alone.

Important evaluation areas include:

• Whether fiduciary responsibilities are documented clearly in writing

• How investment monitoring is performed

• Whether fund replacement criteria are defined

• How frequently investments are reviewed

• Whether fee structures remain transparent

• How reporting and governance documentation are handled

At Basic Capital, we believe fiduciary relationships should prioritize transparency, accountability, and operational simplicity.

Plan sponsors should also understand whether fiduciary coverage extends across all investment options, including brokerage windows or alternative investment structures where applicable.

Why Technology and Reporting Matter

Fiduciary oversight is becoming increasingly data-driven.

Many HR and finance teams still rely on fragmented reporting systems and manual review processes that make oversight more reactive than proactive.

Modern retirement platforms can help simplify:

• Investment monitoring

• Fee visibility

• Compliance reporting

• Governance documentation

• Participant oversight

At Basic Capital, we believe stronger visibility into plan data helps employers make more informed fiduciary decisions while reducing administrative friction over time.

Companies evaluating retirement plan modernization can also explore our For Employers resources to learn how modern retirement infrastructure supports compliance oversight and fiduciary governance.

How Employers Decide Which Structure Fits Best

There is no universal answer for whether a 3(21) or 3(38) arrangement is better.

The right structure often depends on:

• Internal investment expertise

• Committee involvement preferences

• Administrative capacity

• Risk tolerance

• Retirement plan complexity

• Long-term governance goals

Some employers prefer maintaining greater control over investments through a 3(21) relationship, while others prioritize simplicity and delegation through a 3(38) structure.

What matters most is understanding how fiduciary responsibility is actually assigned and maintaining a documented process for oversight.

Looking Ahead

Choosing between a 3(21) and 3(38) fiduciary structure is ultimately about determining how much investment oversight your company wants to retain internally versus delegate to an outside provider.

At Basic Capital, we believe modern retirement infrastructure should help employers:

• Simplify fiduciary oversight

• Improve governance transparency

• Reduce administrative complexity

• Support better participant outcomes

• Modernize retirement plan management

As retirement plans become more complex, employers with stronger fiduciary processes and clearer provider accountability may be better positioned to manage compliance risk and support long-term retirement success.

Ready to modernize your company’s retirement plan oversight? Get started with Basic Capital to learn how our platform helps employers streamline administration, improve retirement outcomes, and support long-term fiduciary governance.