Are you considering hiring an ERISA §3(38) plan manager to run your investment program?
Hiring an ERISA §3(38) plan manager allows for the full delegation of investment decisions for qualified plans to properly licensed and authorized investment managers. For 401(k) plans, this specifically relates to the management of investment menu options, first and foremost. The term is frequently used as an industry marketing moniker to encapsulate further contractual discretionary authority for services such as menu design & structure, share class selection, operational implementation, custom multi-asset funds and target date vehicles, and occasionally even IPS authorship. It is important to note that not all service providers provide all of the above ancillary discretionary services.
Before you make your decision, consider the pros and cons below.
Things to consider:
- While 3(38) can be a more expensive option, fee premiums between 3(21) consulting relationships and 3(38) management agreements have narrowed considerably over the past few years.
- Best practices (and potentially broader applied caselaw) suggest that if hiring a 3(38) manager, that candidate’s track records should be evaluated for historical efficacy.
- Additional due diligence should be applied if engaging an advisor under ERISA §3(38) to ensure that their firm’s processes and systems can administer discretionary authority consistently and efficiently.
What is North Pier’s Expert Opinion?
North Pier is highly in favor of the availability of 3(38) services. However, we do not recommend it universally. When running an search for a client, we invest heavily in education and discovery in advance of determining the scope of advisor searches, factoring the unique facts and circumstances of each client.
The breadth of potential discretionary services is broad. North Pier works closely with our search clients to help determine which discretionary services are desirable and appropriate for the plan’s and committee’s unique situation.