Where Is Your Investment Policy Statement and What's In It?

Does your 401(k) or 403(b) plan have an Investment Policy Statement? If so, where is it and what does it say?

First off, let's be clear. You are not required by any law to have one. ERISA does not require an IPS. But you should know that an IPS is one of the first items that an auditor, whether from your audit firm or the Department of Labor, will request from you.

Every plan needs an investment policy that describes how plan fiduciaries address issues regarding the investments in their plan. The IPS is the document that memorializes your investment policy. It demonstrates a process to deal with the investments in your plan. It's your roadmap.

Your policy and your process must be consistent. You can think of it simply as: "Do what you say and say what you do." If those rules don't match, change the policy to match the process or vice versa.

With defined benefit plans, where plan fiduciaries make the investing decisions, investment policy statements may be long and quite detailed. For defined contribution plans, where participants will make the investing decisions, the IPS tends to be shorter and more general.

An IPS typically contains the following:

  • A statement of purpose
  • Guidelines for the asset classes the plan will contain
  • An outline of the role of the plan fiduciaries
  • Criteria for reviewing investments
  • A description of how new investments are selected
  • A description of the role consultants and other advisors will play in monitoring the plan
  • A description of how costs will be measured
  • A description of how often the policy itself will be reviewed
  • The identification of who is certifying the policy

So where is yours? Do you know what's in it?

Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.

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