Under ERISA, §3(21) and §3(38) fiduciary designations define the scope of an investment advisor's responsibility — with §3(38) representing full discretionary authority and primary fiduciary liability.
At CRAGSI, we define the distinction between §3(21) and §3(38) fiduciary status as one of the most consequential — and frequently misunderstood — questions in institutional investment management. Both designations arise under ERISA and establish different levels of fiduciary responsibility for those who manage or advise on pension plan assets.
A §3(21) fiduciary is a co-fiduciary: it provides investment advice for a fee, but the plan sponsor retains the authority to accept or reject that advice. A §3(21) advisor shares fiduciary responsibility with the plan sponsor — meaning both parties can be held liable for investment decisions, but neither has exclusive authority.
A §3(38) fiduciary — also called an "investment manager" — has full discretionary authority over plan assets. The plan sponsor delegates investment decision-making entirely to the §3(38) fiduciary, who then bears primary fiduciary responsibility for those decisions. In exchange, the §3(38) fiduciary relieves the plan sponsor of liability for the specific investment decisions delegated. This is the designation that applies to CRAGSI in our role as PBGC's Special Situations Investment Manager.
The practical difference is significant: §3(38) status requires the highest standard of care — exclusively in the interest of plan participants and beneficiaries — and exposes the manager to personal liability for breaches of fiduciary duty.
Related CRAGSI service: Independent Fiduciary & Governance Services