What is a 3(38) investment manager? Skip to content

What is a 3(38) investment manager?

The HealthEquity Retirement solution for 401(k) plans is unique in that HealthEquity Retirement signs and acts in the primary fiduciary roles so that the employer does not have to do so. HealthEquity Retirement acts as the 3(16) Plan Administrator and the 3(21) Named Fiduciary. But there is another important fiduciary role that HealthEquity Retirement fills by appointment and that is the 3(38) Investment Manager.

Who is the 3(38) investment manager?

The employer would act as an Investment Manager by default, unless another party is explicitly named. Many employers have created investment committees to satisfy 3(38) requirements. If, however, there isn't an investment committee, then the trustee would be required to fulfill the functions of this role. If the 3(38) is outsourced, it must be outsourced to an RIA firm, bank, or insurance company.

What is a 3(38) investment manager?

A 3(38) Investment Manager is a codified investment fiduciary on a retirement plan as defined by ERISA section 3(38).  The name of this particular fiduciary makes it easy to guess its role. Essentially, the 3(38) is responsible for selecting, managing, monitoring, and benchmarking the investment offerings of the plan. In some plans, but not in participant directed plans, a 3(38) also has discretionary authority to direct the investment of funds. Below is a more detailed list of those responsibilities.

What are the responsibilities of a 3(38) investment manager?

The duties of a 3(38) are set by ERISA and further enhanced by precedent from the Department of Labor. They can also vary insomuch as they are defined by the plan document and related agreements.  Generally speaking, those responsibilities for participant directed plans include the following:

  • Create and manage an Investment Policy Statement
  • Form an Investment Committee
  • Hold investment committee meetings
  • Prudently select plan investment options
  • Report on investments regularly
  • Benchmark investments
  • Replace funds and update models as needed

What are the risks of being a 3(38) investment manager?

There is a certain amount of risk associated with this role, especially as plans increase in size. Recent lawsuits have demonstrated that a large amount of the responsibility associated with the costs and performance of a 401(k) plan stem from the fund lineup selected by the 3(38) Investment Manager. If any of these plans would have outsourced this responsibility to a professional firm, their liability would have been undoubtedly mitigated.

Should an employer outsource the role of 3(38) investment manager?

Even more than for the sake of mitigating risk, outsourcing the role of investment manager can dramatically reduce an employer's work and cost on a 401(k) plan. An effective investment manager will make sure that investments lineups are cost-effective, prudent, diversified, and competitive. And perhaps the best part is that outsourced investment management can be obtained at very little cost to a plan and that cost is easily offset by the additional savings that can be obtained on investments.

The 3(38) Investment Manager role is one of the 3 primary fiduciary roles. Overall, outsourcing fiduciary roles can reduce the cost, risk, and work associated with sponsoring an employee retirement plan.


This article was produced in collaboration with HealthEquity Retirement Services, LLC. HealthEquity Retirement Services, LLC is a wholly owned subsidiary of HealthEquity, Inc. Nothing in this communication is intended as legal, tax, nancial or medical advice.

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