As plan sponsors increasingly outsource to advisers and consultants to help administer their retirement plans and keep up with compliance regulations, the need to train and educate fiduciaries on their duties does not disappear.

It is largely a misconception that offloading certain responsibilities to a co-fiduciary 3(21) or a 3(38) adviser, for example, relieves a retirement plan committee of its fiduciary duties. The need for fiduciary education does not go away when a plan outsources; rather, the focus of the plan committee shifts toward oversight and controls.

Tina Siedlecki, a senior director in the benefits and advisory and compliance group at Willis Towers Watson, says companies today are more focused on their core businesses, and many are looking to expand their support systems to mitigate compliance risks.

“Even if we’re talking about full outsourcing [with] a 3(21) adviser or a 3(38), the fiduciaries can never absolve themselves of fiduciary responsibility,” Siedlecki says. “Whether you’re outsourcing investments for 401(k) administration or pension administration, you still have to train the fiduciaries, … the non-fiduciaries [and] the benefit team members.”

Siedlecki explains that committee members should know who holds fiduciary responsibilities because even if someone on the benefits staff is not a fiduciary, they could step into a fiduciary role by mistake, such as by making an interpretation of the plan or exercising authority over the plan’s assets.

When outsourcing, Siedlecki emphasizes that fiduciaries must monitor contracted advisers and consultants. She says she asks her plan sponsor clients to document the duties they have delegated to outside providers and to make a clear list of what those responsibilities are and who is fulfilling them.

Many plans are offering education to their plan fiduciaries. Nearly 44% of plan sponsors responding to PLANSPONSOR’s 2024 Defined Contribution Survey said they or their plan committee members have participated in fiduciary training in the last two years. That figure was at least 53% for plans with at least $50 million in assets and 81.6% for the largest plans, those with at least $1 billion in assets.

How Common Is Outsourcing?

According to Morgan Stanley’s 2024 Retirement Plan Survey, 55% of plan sponsor respondents said they use a 3(21) investment adviser, and 27% said they use a 3(38) investment adviser.

A 3(21) adviser, or co-fiduciary, provides advice or recommendations to the plan sponsor but does not make final decisions regarding the plan’s investment lineup. A plan sponsor who uses a 3(21) is typically looking for outside investment expertise but wants to retain final discretion over the plan. In comparison, a 3(38) adviser functions as the investment manager for the plan and has the authority to make changes in the investment lineup.  A 3(38) is considered a plan fiduciary.

Morgan Stanley found that while 3(21) relationships are still about twice as common as 3(38) relationships, the gap is likely to continue closing. Most 3(38) users have initiated these engagements in the past five years, and about half of the non-3(38) users are considering switching to this type of engagement, according to the report.

David Levine, a principal in Groom Law Group, points out that there are “many flavors” of 3(38) advisers, 3(21)s and outsourced CIOs. These outsourced services are not the same, but Levine says they all run in the same family, and some are more comprehensive than others.

“Sometimes [an outsourced adviser] [says] they cover the landscape, sometimes they cover narrow things,” Levine says. “A plan sponsor or an appointed fiduciary needs to know: ‘What am I actually hiring for and what am I still owning?’”

Importance of Monitoring Providers

Similar to picking investments or a new recordkeeper, Levine says fiduciaries still need to monitor their service providers and evaluate if they are adding value and if their price is reasonable.

“If you’re hiring a 3(38), you don’t want to be in the middle of picking every investment, because that’s why you have a 3(38) in the first place,” Levine says. “But you want to know how is the performance, how are their fees and understand why they are making their decisions.”

Levine adds that much marketing of pooled employer plans falsely claims that plan sponsors have less fiduciary responsibility because they are outsourcing the administration of the plan. He emphasizes again that fiduciaries who join a PEP still have a responsibility to monitor the provider.

Committees Still Have Significant Responsibility

Theresa Conti—executive director of the Cerrado Group, a collective of independent third-party administrators—says plan committees, whether they outsource services or not, should be meeting regularly, keeping detailed minutes and getting trained on topics that are important and relevant to the administration of the retirement plan.

Conti says she works with recordkeepers and TPAs to conduct fiduciary education training and recommends that committees meet at least twice a year, or quarterly for bigger plans, to participate in fiduciary training.

During these meetings, Conti says the plan’s adviser, whether a 3(38) or a TPA, should be present, especially as the committee is discussing the operations of the plan.

“If we were going to talk about operations of the plan, who knows that better than the TPA?” Conti says. “Then when we talk about plan review, the TPA has fees, the recordkeeper has fees, the adviser has fees, the investments have fees. All of those kinds of things need to be covered at that meeting. I feel strongly that it’s not just a committee meeting … these other people who are an important part of the plan need to be part of that as well.”

Siedlecki says some plans also use a 3(16) fiduciary, a service provider that handles the day-to-day administrative work for a retirement plan. The more that plans move toward outsourcing, Siedlecki says, the more a 3(16) fiduciary can help with improved compliance, but she also says it is important that the plan committee monitor the 3(16) fiduciary.

More than 54% of plan sponsors surveyed by PLANSPONSOR in the 2024 Defined Contribution Survey reported employing a third-party 3(16) fiduciary in some capacity.

In a recent training that Siedlecki conducted, she says the committee discussed topics like fee benchmarking, missing participants and ensuring that participants taking required minimum distributions are being paid out in time. She says a big focus of her training sessions is educating the committee on changes resulting from the SECURE 2.0 Act of 2022.

“We educate our committees on what those changes are so that then when they work with their vendors, like a 3(16) vendor, they can ensure that they’re compliant and can contemplate [compliance] when a vendor might be giving them a different view,” she says. “We think committee members should have an understanding of the regulations and the rules and how they’re changing.”

Levine says it is also important that committees are tracking how their providers are changing. For example, they should be aware if their adviser or consultant’s business is being bought, sold or reorganized and how their services may be changing.  

“It’s important to have a clear, objective view of business changes that could impact your plan, because there’s nothing wrong with offering more services, but it’s important to understand how that fits into your relationship and how, as a fiduciary, you monitor and evaluate solutions,” Levine says.

More on this topic:

	ERISA Rules of the Road
	Fiduciary Basics for New Plan Sponsors