Which Fiduciary Is Which? Breaking Down the Real Differences Between 3(16), 3(21), and 3(38)

If you sponsor a 401(k) plan, you’ve probably heard terms like 3(16), 3(21), and 3(38) fiduciary.

They sound technical – and they are – but understanding what they mean can make a real difference in how smoothly your plan operates and how much fiduciary responsibility your company carries.

This guide breaks down the key differences between these fiduciary roles, what each one does, and why hiring a 3(16) administrative fiduciary can significantly reduce your administrative workload and compliance risk.

The Fiduciary Framework: Where the Numbers Come From

The numbers – 3(16), 3(21), and 3(38) – come from sections of the Employee Retirement Income Security Act (ERISA), the federal law that governs retirement plans.

Each section defines a different type of fiduciary role:

• ERISA §3(16): Administrative fiduciary (plan operations and compliance)
• ERISA §3(21): Co-fiduciary investment advisor (shared responsibility)
• ERISA §3(38): Discretionary investment manager (full investment authority)

Let’s look at what each one actually does.

Reference: https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/erisa 

What a 3(16) Administrative Fiduciary Does

A 3(16) fiduciary takes on many of the day-to-day administrative duties and compliance responsibilities that typically fall on you as the plan sponsor.

They act as an administrative fiduciary, meaning they step into your shoes for certain operational and reporting functions.

Key Responsibilities:

• Overseeing eligibility tracking and enrollment
• Ensuring timely contributions and deposits
• Managing loan and distribution approvals
• Issuing required participant notices and disclosures
• Coordinating Form 5500 filings and audit preparation
• Maintaining and storing fiduciary documentation

Essentially, they make sure the plan is being run according to its rules and regulatory requirements; and they take on legal responsibility for those functions.

Hiring a 3(16) fiduciary shifts a portion of the liability from the employer to a professional administrator. 

This reduces your fiduciary exposure while helping ensure the plan remains compliant day-to-day.

What a 3(21) Investment Advisor Fiduciary Does

A 3(21) fiduciary is typically an investment advisor who shares fiduciary responsibility with the plan sponsor.

They provide recommendations, not decisions, on the investment lineup or fund selection.

Key Responsibilities:

• Reviewing and recommending investment options
• Assisting with the Investment Policy Statement (IPS)
• Providing education and benchmarking data
• Supporting investment committee meetings and decisions

The plan sponsor still makes the final call on which funds to include, so the fiduciary responsibility is shared between the employer and the 3(21) advisor.

A 3(21) fiduciary adds expertise and structure to your investment process, helping document prudent decision-making; but the employer still retains ultimate control.

What a 3(38) Fiduciary Does

A 3(38) fiduciary (often called a discretionary investment manager) takes things a step further.

They have full discretion to select, monitor, and replace the investments in your plan’s lineup.

Key Responsibilities:

• Choosing and managing the plan’s investment lineup
• Replacing funds when needed
• Monitoring performance and fees
• Reporting back to the plan sponsor

The plan sponsor still retains oversight duties (you can’t delegate everything under ERISA), but the 3(38) fiduciary takes on full investment decision-making authority and liability.

This arrangement provides the most hands-off approach for employers who want expert investment management and clear fiduciary protection.

Quick Comparison: 3(16) vs. 3(21) vs. 3(38)

Fiduciary Type	Focus	Level of Responsibility	What They Do	Employer Role
3(16)	Administrative & compliance	High (takes on daily plan operations)	Handles eligibility, notices, filings, contributions	Oversight
3(21)	Investment advisor	Shared	Recommends investment lineup	Final decision-maker
3(38)	Investment manager	Full (for investments)	Makes and implements investment decisions	Oversight only

How a 3(16) Fiduciary Reduces Risk and Saves Time

For many employers, the 3(16) fiduciary is the missing piece in simplifying plan administration.

Because they assume responsibility for operational and compliance tasks, they can:

• Reduce the burden on HR and payroll teams
• Ensure timely and accurate processing
• Improve documentation for audits
• Help prevent common plan errors
• Provide written acceptance of fiduciary liability for covered functions

When paired with 360 degree payroll integration, the result is a nearly hands-free plan administration experience.

Automation keeps the data accurate.
The 3(16) fiduciary keeps the plan compliant.

Together, they minimize your administrative burden and fiduciary exposure.

Which Type Does Your Plan Need?

It depends on your goals and internal resources.

If you want…

• Help running the plan and ensuring compliance → Consider a 3(16) fiduciary.
• Help choosing investments but want to stay involved → Consider a 3(21) fiduciary.
• To delegate investment decisions entirely → Consider a 3(38) fiduciary.

Many employers choose a combination such as a 3(16) administrative fiduciary paired with a 3(38) investment manager to handle both day-to-day plan operations and investment responsibilities.

Understanding the differences between 3(16), 3(21), and 3(38) fiduciaries helps you build the right support structure for your 401(k) plan.

• A 3(16) fiduciary handles the administrative and compliance side.
• A 3(21) fiduciary guides investment decisions.
• A 3(38) fiduciary makes those decisions for you.

The right mix depends on your plan’s size, complexity, and internal capacity. Delegating wisely can help reduce your risk, save time, and strengthen your fiduciary protection.

To learn more about fiduciary support options for your plan or to take the free 401(k) Plan Health Quiz, visit 401kschool.com.

Disclaimer: This material is for general informational purposes only and is not intended to provide legal or tax advice.