Certified Plan Sponsor Professional (CPSP) Practice Exam

True or False: Hiring an ERISA Sec. 3(38) investment manager relieves the plan sponsor of all fiduciary duty regarding investment selection and monitoring.

1. True

2. False

3. Sometimes

4. Only for certain investments

The correct answer is: True

A hiring an ERISA Section 3(38) investment manager does provide a plan sponsor with a significant relief from fiduciary duties related to investment selection and monitoring. When a plan sponsor delegates investment responsibilities to a 3(38) manager, that manager assumes the fiduciary responsibility for managing the investments, which includes making decisions about the selection and continuous evaluation of the plan's investment options. This shift allows the plan sponsor to focus more on other aspects of plan administration, knowing that the investment management is being handled by an expert. However, it does not completely absolve the plan sponsor of all fiduciary responsibilities. The plan sponsor still has the duty to prudently select the 3(38) investment manager, monitor that manager to ensure they are fulfilling their obligations, and ensure overall compliance with ERISA and the plan's investment policies. The plan sponsor must be diligent in selecting a capable and trustworthy manager and periodically review the manager's performance and adherence to the plan's goals. Therefore, while a 3(38) investment manager significantly alleviates certain fiduciary duties related to investment decisions, it does not eliminate fiduciary responsibility altogether.