The SECURE Act reshaped the retirement landscape by introducing the Pooled Employer Plan (PEP), enabling unrelated employers to band together under a single 401(k) plan structure. This innovation promised access to institutional pricing, simplified operations, and enhanced fiduciary oversight through a Pooled Plan Provider (PPP). Yet one of the most common questions plan sponsors and advisors ask is: where does the advisor fit in a PEP? Specifically, how do ERISA §3(38) investment managers compare with §3(21) fiduciary advisors within this consolidated plan administration model—and what “beyond” roles are emerging?
This article unpacks the distinctions, practical implications, and decision points for plan sponsors, advisors, and recordkeepers navigating PEPs, Multiple Employer Plan (MEP) alternatives, and evolving plan governance structures.
The Foundation: PEPs, PPPs, and Shared Responsibilities
A Pooled Employer Plan is overseen by a Pooled Plan Provider, a registered fiduciary responsible for the PEP’s overall operation, including required filings and ERISA compliance. By design, a PEP centralizes functions such as document maintenance, eligibility standards, and consolidated plan administration, allowing adopting employers to offload much of their administrative burden. In contrast, a Multiple Employer Plan typically requires a nexus or common interest among employers (unless it is an open MEP under updated rules) and can vary more widely in how responsibilities are allocated.
Under a PEP, the PPP often selects and monitors the investment lineup, hires service providers, and administers the plan. This architecture is intended to reduce employer risk and streamline retirement plan administration. However, it does not eliminate all fiduciary duties at the employer level. Employers pooled employer 401k plans still retain the duty to prudently select and monitor the PPP and to ensure the PEP remains appropriate for their workforce.
Within this framework, advisors can fill multiple roles—from participant-facing education to fiduciary investment oversight—depending on how the PEP is designed and how the PPP delegates key responsibilities.
Defining the Roles: ERISA §3(38) vs. §3(21)
- ERISA §3(38) Investment Manager: Assumes discretion over investment selection, monitoring, and replacement. Must be a registered investment adviser (RIA), bank, or insurance company. Accepts fiduciary status and legal accountability for investment decisions. Reduces employer involvement in day-to-day investment management and can lower risk for adopting employers within a PEP. ERISA §3(21) Fiduciary Advisor: Provides advice and recommendations but does not have discretion. The plan fiduciary (often the PPP within a PEP) retains final decision-making authority. Shares fiduciary responsibility but not to the same extent as a §3(38) manager. Can be effective where the PPP or committee prefers to maintain decision rights.
In a PEP, either structure can work. The PPP may contract with a §3(38) manager to fully outsource investment discretion or retain a §3(21) advisor to provide guidance while the PPP makes the final calls. The choice affects liability allocation, workflow speed, and documentation standards.
Practical Implications for PEP Design
Liability and Risk Allocation- With a §3(38) appointment, the investment manager assumes fiduciary oversight for the lineup, easing pressure on the PPP and adopting employers. This can be compelling for smaller employers seeking a turnkey solution with limited internal resources. With a §3(21) arrangement, the PPP or investment committee retains discretion and therefore more fiduciary risk. This can appeal to sponsors who want more control or have specific investment preferences.
- A §3(38) may implement standardized lineups, custom target-date strategies, and streamlined monitoring protocols. Standardization can enhance pricing power across the pooled asset base and ease consolidated plan administration. A §3(21) model may support a broader range of optionality, including white-label funds or different share classes, but requires the PPP or committee to document decisions and act on recommendations.
- PEPs can deliver economies of scale via a unified 401(k) plan structure. Whether under §3(38) or §3(21), advisors must clearly disclose fees and responsibilities, and PPPs should benchmark pricing. Consolidation does not obviate the need for prudent fee monitoring under ERISA compliance standards.
- Regardless of fiduciary model, participant advice, financial wellness, and managed account services can be layered on. Advisors can deliver participant education, rollover guidance, and retirement income strategies, enhancing outcomes without altering the core plan governance.
- Under §3(38), ensure a robust investment policy statement (IPS) granting discretion and outlining benchmarks, replacement criteria, and monitoring cadence. Under §3(21), formalize how the PPP or committee evaluates recommendations and documents decisions to maintain ERISA-compliant processes.
Beyond 3(38) and 3(21): Evolving Advisor Roles in PEPs
- Co-Fiduciary Committees with PPPs: Some PPPs establish oversight committees that include advisors for operational reviews, vendor monitoring, and service-level metrics. While the PPP remains accountable, advisors enhance governance rigor. Managed Accounts and Retirement Income: Advisors increasingly shape managed account frameworks, default structures, and in-plan retirement income solutions, balancing fiduciary oversight with participant choice. Data Analytics and Personalization: Advisors add value by analyzing plan utilization, loan/leakage patterns, and savings rates, offering targeted strategies to improve participant outcomes under the consolidated plan administration umbrella. Vendor Benchmarking and RFPs: Even in a PEP, advisors can lead periodic market checks of recordkeepers, stable value providers, and custodians to validate cost and service competitiveness. Transition Support Between PEPs and MEPs (or Single-Employer Plans): Advisors help employers evaluate whether a PEP, a Multiple Employer Plan, or a standalone plan best fits changing business needs, workforce demographics, or M&A events.
When to Choose §3(38) vs. §3(21) in a PEP
Consider a §3(38) investment manager when:
- The employer wants maximum delegation and clear fiduciary accountability for investments. The PPP is seeking tighter, consistent implementation across many adopting employers. Speed and efficiency in lineup changes are priorities.
Consider a §3(21) fiduciary advisor when:
- Stakeholders prefer to retain discretion and tailor the investment menu. There is internal expertise or a specific investment philosophy to implement. The PEP’s design allows more customization without sacrificing ERISA compliance.
In both cases, the PPP’s due diligence in selecting the advisory partner and the advisor’s clarity about scope, compensation, and monitoring is critical to sound plan governance.
Key Takeaways
- PEPs created under the SECURE Act centralize many aspects of retirement plan administration, but do not remove employers’ duty to prudently select and monitor the PPP. The 3(38) vs. 3(21) decision centers on discretion, risk allocation, and operational preferences in investment management. Advisors play a broader role “beyond” investments—driving participant engagement, vendor oversight, and data-informed improvements within a consolidated plan administration model. Clear documentation, transparent fees, and ongoing monitoring remain the pillars of ERISA compliance and fiduciary oversight, whether in a PEP, MEP, or single-employer 401(k) plan structure.
Frequently Asked Questions
Q1: If a PEP uses a §3(38) manager, do adopting employers have any remaining fiduciary duties? A: Yes. Employers must prudently select and monitor the Pooled Plan Provider and, by extension, the §3(38) investment manager. They should review reporting, fee benchmarks, and performance, even though day-to-day investment decisions are delegated.
Q2: Can a PEP support both §3(38) and §3(21) models? A: Many PEPs standardize on one model for simplicity. However, some allow different investment oversight structures at the plan or adopting employer level. The PPP’s plan document and service agreements will dictate allowable configurations.
Q3: Do PEPs always cost less than single-employer plans? A: Not always. While pooled scale can reduce fees, results vary by asset size, participant count, and service menu. Advisors should benchmark costs and services regularly to validate value within consolidated plan administration.
Q4: How does this compare to a Multiple Employer Plan? A: A MEP can deliver similar efficiencies but may differ in eligibility, governance mechanics, and fiduciary assignment. The PEP’s hallmark is broader access without a common nexus and the central role of the PPP in plan governance.
Q5: What should be in the IPS under a §3(38) arrangement? A: Define roles and discretion, asset class pooled employer 401k plans florida coverage, benchmarks, watch-list criteria, replacement protocols, reporting cadence, and fee monitoring. This anchors ERISA compliance and streamlines fiduciary oversight within the PEP.