By Mark Olsen, Managing Director at PlanPILOT
Navigating the complexities of retirement plans requires a skill set that includes vigilance, attention to detail, and expertise. For plan sponsors, the main responsibility is twofold: safeguarding the financial well-being of their participants and adherence to regulatory standards. As the regulatory landscape evolves and the onus of legal compliance intensifies, it’s becoming more clear that it’s easy for a variety of mistakes to be made in the management of a retirement plan.
To lessen these mistakes and increase overall plan effectiveness, it’s wise to consider adding a dedicated professional to assist with the plan. Enter the ERISA 3(38) investment manager—a specialist equipped to shoulder the weight of investment decisions, responsibilities, and fiduciary compliance.
In this article, we explore eight compelling reasons to consider integrating a 3(38) investment manager into your retirement plan strategy, demonstrating how such a decision can foster not only compliance and efficiency but also optimal performance for your plan’s beneficiaries.
1. Reduced Liability for Plan Sponsors
When plan sponsors choose to work with a 3(38) investment manager, they delegate the fiduciary duties of managing the investment decisions, significantly reducing their liability. While not all fiduciary responsibilities can be transferred, the critical task of making and monitoring investment decisions can be. This allows sponsors to have greater assurance and shift their focus to other responsibilities such as administrative functions, participant engagement, and overall plan design, with the confidence that the plan’s investments are being managed by specialists who are assuming legal accountability for these decisions.
2. Access to Proficiency
The landscape of retirement plans is both complex and dynamic, requiring specialized knowledge to navigate effectively. A 3(38) investment manager brings not only a wealth of experience but also access to sophisticated analytical tools and resources. This professional skill keeps the plan aligned with the latest best practices and designed to meet both the current and future needs of participants.
3. Efficiency and Time Savings
Investment management is time-consuming, involving constant market analysis, selection of suitable investment vehicles, and ongoing adjustments to align with changing market conditions. By entrusting a 3(38) investment manager with these tasks, plan sponsors can reallocate their time to focus on broader business strategies or other pressing concerns. This partnership fosters a more efficient division of labor, whereby the investment manager handles the minutiae of investment management, and the sponsor leverages time savings for other critical operational areas.
4. Tailored Investment Strategies
Each retirement plan has unique goals based on the demographics of its participants, the company’s financial status, and its long-term objectives. A 3(38) investment manager can create customized investment strategies that account for these factors, aiming for improved financial performance tailored to the specific risk and return profiles needed by the plan. Personalized investment approaches can be the key to realizing specific financial outcomes and seeing the long-term growth of the retirement plan’s assets.
5. Clear Responsibility and Decision-Making
A 3(38) investment manager assumes full discretion over the investment choices of the plan, providing a clear line of responsibility. This distinct demarcation eliminates any confusion over roles and helps to streamline decision-making processes. It simplifies the investment strategy and minimizes the risk of internal conflicts by clearly designating the investment manager as the responsible party for all investment decisions.
6. Regular Monitoring and Reporting
Continuous oversight of investment performance is crucial, and a 3(38) investment manager takes on this responsibility, providing plan sponsors with comprehensive, regular reports on the health of the chosen investments. These reports can include benchmarking investments, reviewing investment policy statements, and reviewing share classes.
7. Cost-Effectiveness
There are fees associated with hiring a 3(38) investment manager, but these are often outweighed by the benefits. Improved investment performance, reduced legal risks, and decreased operational burdens for the plan sponsor can lead to overall cost savings. Additionally, the scale of investments managed by these professionals can lead to reduced costs through institutional pricing and the avoidance of common pitfalls that can be costly for less experienced managers.
8. Enhanced Plan Governance
Finally, the addition of a 3(38) investment manager can significantly strengthen the governance and oversight of a retirement plan. This role brings an extra layer of fiduciary oversight, helping to make all investment decisions with the best interests of participants as the guiding principle.
Take the Next Step: Unlock the Benefits of a 3(38) Investment Manager
Managing the multifaceted world of plan sponsorship requires skill, foresight, and a deep understanding of industry best practices. If you believe your firm could benefit from additional help, consider hiring a 3(38) investment manager so you are well equipped to tackle these challenges head-on.
If you think working with a dedicated professional can help you become a better plan sponsor, let’s connect. A partnership with PlanPILOT can be the catalyst you need. Reach out at (312) 973-4913 or get in touch directly via mark.olsen@PlanPILOT.com.
About Mark
Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, Stable Value Investment Association, and CUPA-HR.