The Fiduciary Shift: Why 3(38) Consultants Are the New Safety Net for 401(k) Plans

The retirement plan landscape is undergoing a quiet revolution. Plan sponsors, once content to delegate investment advice to non-discretionary consultants, are now racing to embrace 3(38) fiduciary services—a move driven by soaring liability risks, the complexity of modern investment options, and the urgent need to educate participants. This shift isn't just about compliance; it's about survival. For investors, the rise of 3(38) fiduciaries presents a golden opportunity to capitalize on a structural shift in how employers manage retirement plans.

The Liability Time Bomb: Why 3(38) Is No Longer Optional

Plan sponsors are waking up to a stark reality: litigation is no longer a remote risk but a daily threat. Class-action lawsuits targeting retirement plans have surged in recent years, often alleging breaches in fiduciary duty—like failing to monitor high-cost funds or outdated investment strategies. A 2024 study by Groom Law Group revealed that 82% of ERISA cases now involve claims of imprudent investment decisions, with mid-sized plans ($100M–$500M) facing disproportionate scrutiny.

Enter the 3(38) fiduciary, which transfers full responsibility for investment decisions to an external manager. By outsourcing this role, employers dramatically reduce their liability exposure. As Jenny Eller of Groom Law Group notes, “If a sponsor follows a prudent process to select a 3(38) manager, ERISA shields them from losses caused by the manager's mistakes.” This liability firewall is no longer a luxury—it's a necessity.

The Complexity Factor: Why 3(38) Managers Are the New Experts

The rise of target-date funds (TDFs), hybrid defaults, and guaranteed payout strategies has turned retirement plan management into a high-wire act. Consider this:
- 71% of plans now offer TDFs with guaranteed income, but these require constant monitoring of glide paths and risk tolerances.
- 56% of sponsors use hybrid defaults, blending active and passive strategies—a balancing act few committees can master.
- AI-driven investment tools are now mainstream, but their biases and data gaps demand expertise to mitigate fiduciary risk.

The days of relying on in-house committees or non-discretionary 3(21) advisors are over. “Plan sponsors are realizing that complexity demands specialization,” says Michael Abbott of CAPTRUST. “3(38) managers don't just pick funds—they build processes, document decisions, and adapt to market shifts in real time.”

Education: The Often-Neglected Key to Retirement Success

Participant outcomes are the ultimate measure of a plan's success—and here, education is the linchpin. A 2025 survey by PLANSPONSOR reveals that 62% of employees lack confidence in their retirement readiness, with misinformation and inertia driving poor decision-making.

3(38) fiduciaries are uniquely positioned to address this gap. By integrating personalized education—such as AI-driven retirement calculators, fee transparency dashboards, and gamified savings tools—they turn plans into engagement engines. “Participants won't act on good investment options if they don't understand them,” says Intellicents CEO Sarah Budd. “3(38) managers can't just manage money; they must educate the end-user.”

Actionable Insights for Plan Sponsors

1. Audit Your Fiduciary Model: If you're still using a 3(21) advisor, ask: Can they document their due diligence? Are they liable for poor decisions? The answer likely justifies a switch to 3(38).
2. Prioritize Education Budgets: Allocate 2–3% of plan assets to participant education—tools like robo-advisors or virtual advisors can boost engagement at scale.
3. Monitor AI and Cyber Risks: As fiduciaries adopt AI, demand transparency into algorithms and data sources.

The Investment Play: Capitalizing on the Fiduciary Shift

The rise of 3(38) services isn't just a trend—it's a multi-billion-dollar structural shift. Investors should focus on three areas:
- Fiduciary Services Firms: Companies like T. Rowe Price (TROW) and CAPTRUST (CAPT) are scaling their 3(38) offerings to meet demand.
- Education Tech Platforms: Firms like Betterment or Wealthfront, which blend investment management with participant education, are poised to grow.
- PEP Providers: Pooled Employer Plans (PEPs), which rely heavily on 3(38) fiduciaries, have attracted over $10B in assets.

The writing is on the wall: plan sponsors who cling to outdated fiduciary models risk lawsuits, disengaged employees, and regulatory headaches. The path forward is clear: outsource liability, embrace complexity with expertise, and invest in education. For investors, the firms enabling this shift are the winners of the retirement revolution.

The clock is ticking. The question isn't whether to act—it's how quickly you can seize this moment.