How to strengthen your Investment Policy Statement

A well-crafted investment policy statement (IPS) more important than ever.
Why? For one thing, because it’s one of the first things the feds will ask for if your retirement plan gets audited for fiduciary issues.

And with the feds placing a higher premium than ever on the fiduciary duty of a retirement plan sponsor, you don’t want to come up short in this area.

Plus, failing to have an IPS that’s distributed to employees could wind up putting you on the wrong end on an ERISA lawsuit.

A number of circuit courts have said any documents that help participants understand their rights and benefits – i.e., an investment policy statement – must be disclosed.

At a bare minimum

There are certain basic things all solid investment policy statements should have.

These include:

• a plan description
• a list of the responsible parties (advisors vs. decision makers)
• the fiduciary oversight structure (aka, who owns what part)
• the plans investment objectives and performance targets, and
• watch list criteria for investment managers (e.g., the criteria that would force you to take action).

2 problem areas

On the other end of the spectrum, it’s important to steer clear of any overly specific language in an IPC that would force your company to take action.

Example: Words such as “may” could leave your company with limited options.

It’s also a good idea to avoid specific fund names in your statement. Instead, stick to asset classes so you don’t have to constantly update the policy.

Cite: “401(k) Plan Management Best Practices,” a presentation at the Association for Financial Professionals conference in Orlando, FL.