Under the Employee Retirement Income Security Act of 1974 (ERISA), fiduciary responsibility lies at the heart of retirement-plan governance. The statute imposes on plan sponsors the duties of loyalty, prudence, and diversification under Section 404(a), among others. A recurring question for plan sponsors is whether to engage an investment advisor who acts under ERISA Section 3(21) or to delegate full discretionary authority to an investment manager under Section 3(38).
This column explains the differences between these two fiduciary roles, outlines the advantages and disadvantages of each, and provides guidance for plan sponsors regardless of which path they choose.