Do you provide ERISA 3(38) Investment Manager or ERISA 3(21) Limited Scope Fiduciary services to your customers?
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Why the carrier asks
This question helps the insurance carrier assess the risk associated with providing specific fiduciary services under the Employee Retirement Income Security Act (ERISA). Acting as an ERISA 3(38) Investment Manager or a 3(21) Limited Scope Fiduciary carries significant legal responsibilities and potential liability for the management of retirement plans. Understanding your role helps the underwriter evaluate your fiduciary exposure and determine the appropriate coverage and premium for your E&O policy.
Key terms
- What is an "ERISA 3(38) Investment Manager"? A 3(38) Investment Manager has full discretionary authority to make investment decisions for a retirement plan. This includes selecting, managing, and replacing assets without needing client approval for each transaction. This role assumes the primary fiduciary liability for those investment decisions.
- What is an "ERISA 3(21) Limited Scope Fiduciary"? A 3(21) Fiduciary provides investment advice or recommendations for a fee to a retirement plan, but the plan sponsor (your client) retains the final decision-making authority. In this role, you share fiduciary liability with the plan sponsor.
How to answer
To answer this question, you need to identify the specific nature of the services you provide to any employer-sponsored retirement plans (like 401(k)s or pension plans).
- ERISA 3(38) Role: Do you have full discretionary control to manage a plan's investments without needing the client's sign-off for each trade?
- ERISA 3(21) Role: Do you provide investment recommendations, but the client (the plan sponsor) must ultimately approve them before they are implemented?
You must answer "yes" if you provide either of these services, and then report your plan assets and number of accounts for each role (see the FAQ below). If you do not provide these specific fiduciary services to any ERISA plans, you can answer "no."
Common mistakes
- Mistake: Confusing the two roles.
- The key difference is discretion. A 3(38) has full decision-making power over investments, while a 3(21) only provides recommendations. Understanding which role you fill is critical.
- Pitfall: Believing your role isn't "formal."
- Even if your contract doesn't explicitly state "3(38)" or "3(21)," your actions and the services you provide can legally define you as a fiduciary under ERISA rules. You must disclose the role based on your function, not just your title.
- Mistake: Assuming this applies to IRA accounts.
- This question is about employer-sponsored retirement plans governed by ERISA (e.g., 401(k)s, pension plans), not typically individual retirement accounts (IRAs), unless they are part of an employer-sponsored plan like a SEP or SIMPLE IRA.
Frequently asked questions
What information do I need to provide if I answer "yes"?
The application asks for a short table with one line for ERISA 3(38) and one line for ERISA 3(21). For each role, you provide:
- Total plan assets: the combined assets of all the plans you serve in that role.
- Number of accounts: how many plan accounts you serve in that role.
We help a plan sponsor select a menu of funds for their 401(k). Which role is that?
This typically falls under the ERISA 3(21) role. You are providing advice and recommendations, but the plan sponsor (the company) is ultimately responsible for approving and offering that fund lineup to its employees.
Can we be both a 3(21) and a 3(38) fiduciary?
Yes. A firm can act as a 3(21) fiduciary for some clients and a 3(38) fiduciary for others, depending on the specific terms of each client agreement. You must disclose all roles that you perform.
Does being a 3(38) or 3(21) fiduciary mean I need an ERISA bond?
It can, and it's a separate requirement from your E&O policy. Under Department of Labor rules, an advisor with discretionary authority over ERISA plan assets needs a third-party ERISA bond. A 3(38) Investment Manager has that discretion by definition. A 3(21) fiduciary who only gives advice, without discretion to buy or sell, generally doesn't need to be bonded for that advice.
The bond protects the plan against theft of its funds; your E&O policy covers claims about the advice itself. For when a bond is required and how to avoid overpaying for one, see our guide to ERISA bonding for advisors.
This guide explains what application questions generally ask and how carriers tend to read the answers. It isn't legal advice or a coverage determination: your carrier's application and policy wording control. When you're unsure how to answer, ask your broker before you sign.
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