- An IPS documents that there is a defined process by which the ERISA 403(b) and 401(k) is being managed.
- It helps prevent fiduciaries from making unsteady investment decisions when markets are turbulent.
- It clearly identifies plan fiduciaries and helps them manage their responsibilities.
- An IPS defines roles and responsibilities of trustees, advisors, custodians and investment managers.
- It explains how to hire, monitor and replace investment managers when necessary.
- It provides evidence that a clear process and a methodology exist for selecting and monitoring plan investments.
- It is a well-articulated, documented procedure for investment selection and ongoing investment evaluation, which are fiduciary obligations.
- the plan documents identify the trustees and named fiduciaries;
- the plan is intended to be ERISA section 404(c)-compliant;
- there is a clear understanding of the plan expenses and whether they are reasonable;
- there is a formal process for making investment-related decisions;
- there is a clear paper trail relative to the process being followed;
- it is clear who has the authority to make investment decisions; and
- the trust documents prohibit certain asset classes.
After you have reviewed your plan documents, you are ready to write your IPS. While no single approach is appropriate for everyone, a typical IPS may cover the following:
- The Plan – General explanation of the purposes and goals of the IPS; acknowledges applicability of ERISA fiduciary standards and rules; addresses whether the plan is intended to be ERISA section 404(c)-compliant.
- Purpose of the IPS – Identifies the objective of the investment policy statement and states the intention to review the policy quarterly, or at least annually, and to amend it as necessary.
- The Investment Objectives – Identifies the plan investment philosophy and the processes for the selection, monitoring and evaluation of plan investments.
- Duties, Roles and Responsibilities – Generally defines the roles of the parties involved in the management of plan assets and administration of the plan. If there is an investment committee, the members are identified and their roles stated.
- Investment and Manager Selection – Identifies the policies and guidelines to be followed when selecting investments and managers.
- Investment Monitoring and Reporting – Provides a process by which investment options are regularly reviewed and evaluated for continuing appropriateness.
- Investment Manager Monitoring and Termination – States how investment managers will be monitored and how often. Explains how underperforming managers will be evaluated and replaced if necessary.
- Coordination with the Plan Document – Clarifies that in event of conflict between the IPS and the plan document, the plan document controls.
- Controlling and Accounting for Investment Expenses – Defines the process by which expenses will be reviewed for reasonableness.
It is not enough for you to simply write an IPS. You must also follow it, communicate it and review it. An ignored IPS is evidence that you are not managing or using the plan the way it was intended. Communicating the IPS is important for making sure everyone – participants, managers and service providers – is aware of what the plan involves and whether it is in compliance with the law. The needs and expectations of the plan and participants can change over time, which is why the IPS also needs to be reviewed and, if necessary, revised regularly.
With any plan document, your IPS should be reviewed by legal counsel prior to implementation. If you have any questions about this article, or would like to begin talking to a dedicated retirement plan advisor, please get in touch by email or by calling (855) 882-9177.
With any plan document, your IPS should be reviewed by legal counsel prior to implementation. If you have any questions about this article, or would like to begin talking to a dedicated retirement plan advisor, please get in touch by email or by calling (855) 882-9177.
