How to Write an Investment Policy Statement, 2nd Edition

CHAPTER 3

WHAT IS AN INVESTMENT POLICY STATEMENT AND WHAT ARE THE BENEFITS?

An IPS is a written document outlining the process for a plan sponsor’s investment-related decision making. Its purpose is to describe, formally, how investment decisions are related to a plan’s goals and objectives, as well as to document the plan’s strategic vision for plan investment. A written IPS can also provide a framework for participant communication and education.

An IPS is a written document outlining the process for a plan sponsor’s investment-related decision making.

Risk Management

Fiduciaries who have neither described the investment procedures required by ERISA in a written IPS nor documented their implementation may render themselves vulnerable to legal action from disgruntled plan participants or the U.S. Department of Labor. A significant benefit of writing an IPS is that it forces fiduciaries to comply with the procedural mandates of ERISA. It provides a very important paper trail you may need if problems develop in the plan’s future.

Further, a well-constructed IPS provides evidence that a clear process and methodology exist for selecting and monitoring plan investments. In fact, in the process of a plan audit, the Department of Labor will routinely ask to see a plan’s investment policy within the initial audit notification and information request letter.

An IPS’s purpose is to describe, formally, how investment decisions are related to a plan’s goals and objectives, as well as ...