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COLLECTED WISDOM™ on Investment Policy Statements

Though the law does not require a 401k plan adopt an investment policy statement, most experts agree that adopting one is a key and crucial first step in providing plan fiduciaries with a clear roadmap. Learn more from these resources.

This archive contains not only the most current material on the topic, but also older items that are still relevant, provide background, perspective or are germane to the topic.

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Checklist of Potential Defined Contribution IPS Considerations

The DC investment policy statement is not a static document. Changes in the macroeconomic, inflationary, and regulatory environments call for an ongoing reevaluation of the IPS. Therefore, DC fiduciaries are taking a fresh look at their overall IPS approach. Here is a checklist.

Source: Dciia.org, August 2023

The Investment Policy Audit

Not to be confused with a financial audit performed by a Certified Public Accountant, an audit of an IPS examines the execution of the process defined in the IPS but does not address investment or financial outcomes. While the extent of the controls over the investment decision-making practices of fiduciary committees differs somewhat among ERISA plan sponsors, the tests applied to each evaluation focus on standard criteria in an audit. Those criteria include due diligence concerning the selection of money managers, adherence to the IPS specifications, and documentation of the monitoring activities.

Source: Rolandcriss.com, February 2022

Do You understand Your Investment Policy Statement?

Even the most thorough and detailed IPS will be of limited utility unless the plan fiduciaries who are adopting the IPS can understand the document. For that reason, an IPS should: (1) provide meaningful guidelines that committee members can apply in fulfilling their duties; and (2) be written a way that an intelligent and engaged committee member can understand and implement.

Source: Verrill-law.com, July 2021

Four Considerations for Creating a Strong IPS

This paper describes four considerations to use in helping determine if an IPS is strong. The overarching theme of these four considerations is thoroughness as it relates to documenting the governance, oversight, investment management, and monitoring/evaluation functions of the investment program.

Source: Pnc.com, July 2021

What 401k Plan Sponsors Need to Know About the Investment Policy Statement

When you're a 401k plan sponsor, you hear a lot about an investment policy statement and how you need one. Yet many plan sponsors don't know what it is or what it does. This article breaks down what an IPS is, what it does, and what it doesn't do.

Source: Jdsupra.com, June 2021

Having an IPS Doesn't Necessarily Increase Plan Sponsor Liability

Retirement plan sponsors aren't required by ERISA to have an investment policy statement, but it is considered a prudent and best practice. However, Bruce Ashton, a partner in the Faegre Drinker Biddle & Reath LLP Employee Benefits and Executive Compensation Practice Group, says he's heard some plan sponsors say they don't want an IPS because it will increase their liability. "I don't think that's true," he says. "The issue is what's in the IPS and whether plan fiduciaries are following it."

Source: Plansponsor.com, February 2021

Final Rule on Financial Factors in Investing Sidesteps ESG Focus

The final rule on ESG investing by ERISA plans steps away from the proposed rule's focus on ESG. The DOL notes that "unlike the proposal, the final rule's operative text contains no specific references to ESG or ESG-themed funds." Rather, the DOL's position is that the lack of a precise or generally accepted definition of 'ESG' made ESG terminology inappropriate as a regulatory standard. Therefore, the final rule refers to "pecuniary factors and non-pecuniary factors" in defining the relevant fiduciary investment duties.

Source: Asppa.org, November 2020

DOL Final Regulations Regarding Financial Factors in Selecting Plan Investments

The Department of Labor is adopting amendments to the "investment duties" regulation under Title I of ERISA. The amendments require plan fiduciaries to select investments and investment courses of action based solely on financial considerations relevant to the risk-adjusted economic value of a particular investment or investment course of action.

Source: Americanbenefitscouncil.org, November 2020

Investment Policy Statement Must Stop Short of Promises

An Investment Policy statement can do more harm than good if it moves from policy to guaranteed results. The policy can become more of a liability than a benefit if it steps over this line. Should you even have an Investment Policy Statement for your retirement plan? Yes. Should you throw everything in and include the proverbial kitchen sink? Absolutely not.

Source: 401ktv.com, September 2020

Review Investment Policy Statements for ESG Investment Compliance

As the DOL increases its investigations and inquiries into ESG investments held by retirement plans, plan fiduciaries should review their plan investments and policies to (i) determine if their retirement plans hold any ESG-type investments, and (ii) if they do hold such investments, (a) review their investment policy statements and evaluate whether such policies comply with the current rules for ESG investments, and (b) confirm whether such investments remain appropriate for the plan.

Source: Haynesboone.com, August 2020

Eight Reasons to Have an Investment Policy Statement for Your Retirement Plan

A plan investment policy statement is a written statement intended to provide a plan's investment fiduciaries with a framework for decision making regarding various types or categories of plan investments. Typically, an IPS outlines the roles of the parties involved with the plan investment process and details their investment responsibilities. Although an ERISA retirement plan is not required to have an IPS, it is generally considered a best practice to have one. Here are eight reasons to establish and maintain an IPS.

Source: Frostbrowntodd.com, July 2020

DOL Proposes New Fiduciary Guidance for Selection of Socially Responsible Plan Investments

The proposed rule makes it clear that fiduciaries must select those investments based solely on financial considerations that impact the economic value of the investments. In other words, plan fiduciaries must not sacrifice performance or expose the plan participants and beneficiaries to additional risk by including investment options that primarily serve the non-financial interests of the plan fiduciaries.

Source: Icemiller.com, July 2020

Creating an Effective Investment Policy Statement

Not all investment policy statements are created equal and there are a few topics every IPS should cover. Learn about what should be included in an effective investment policy statement and how a well-crafted IPS can lighten the load of a committee that's tasked with difficult plan decisions.

Source: Planpilot.com, March 2020

Investment Policy Statements for DC Plans

Fiduciaries are not only re-examining their current investment decision-making practices, but they are also seeking to ensure that those practices allow for enough flexibility in implementation to maximize the likelihood of investment success, while protecting the plan sponsor from potential litigation. Central to the idea of a well-managed program, a clearly articulated investment policy statement serves as the foundation of sound governance and a robust oversight process. This 6-page paper summarizes the key elements of an IPS and discusses the ways great policy design can ultimately drive a successful DC plan.

Source: Russellinvestments.com, March 2020

Steps for Creating an Effective IPS

There are different points of view on what elements should go into an IPS, according to Fred Reish. He notes that there are different forms available on the internet that plan sponsors may use as a guide. These considerations will help with what Reish calls the starting point, which is to determine what investment categories plan sponsors want to include in their investment lineups or investment portfolios. But according to Reish, when considering the elements to include in the IPS, the main things defined contribution plan sponsors need to look at are workforce demographics and other characteristics.

Source: Plansponsor.com, February 2020

Five Critical Elements Every 401k IPS Must Contain to Achieve Its Primary Purpose

A 401k IPS can be as complex or as simple as the plan sponsor desires. It can be five pages or 50 pages. No matter the length or its intricacy, a 401k IPS must contain five critical elements. Each element addresses, supports, and sustains the primary purpose of a 401k IPS: the long-term protection and ultimate success of plan participants.

Source: Fiduciarynews.com, January 2020

Should a Plan Sponsor Adopt a 401k Investment Policy Statement?

While it is by no means a universal truth, it is now commonly believed most 401k plan sponsors are better served by adopting an IPS. The law does not require it, but it is a best practice not only for the plan but for the investment adviser as well because it lays out in writing a guideline for investment objectives and limitations for both.

Source: Fiduciarynews.com, December 2019

What Is a 401k Investment Policy Statement?

It's not required by law, but it has become a best practice. And there's a good reason for this. The 401k Investment Policy Statement offers plan sponsors an avenue for safety, but only if they're careful. What is a 401k IPS? What's is supposed to do? If it's not required, why are we talking about it? This is the first in a series of articles designed to answer the basic questions 401k plan sponsors have concerning investment policy statements.

Source: Fiduciarynews.com, November 2019

The Truth About Your Need of a 401k Investment Policy Statement

When you're a 401k plan sponsor, you hear a lot about an investment policy statement (IPS) and how you need one. Yet most sponsors like you don't know what it is and what it does. This article breaks down what an IPS is, what it does, and what it doesn't do.

Source: Jdsupra.com, October 2019

Building a Better 401k Plan Investment Lineup

A rash of 401k class-action lawsuits and low participation rates have revealed rifts between plan sponsor intentions, on the one hand, and participant perceptions of actual practices, on the other hand. Details about plan investment lineups often reside at the center of the controversy and confusion. This paper examines six items a plan sponsor might consider when building, maintaining, and altering the fund menu for its participants.

Source: Jhinvestments.com, June 2019

Why Plan Sponsors Should Adopt an Investment Policy Statement

Although ERISA doesn't specifically require retirement plan sponsors to create and adhere to a written Investment Policy Statement, having an outlined statement in place can allow sponsors to efficiently run a plan consistent with ERISA requirements while fulfilling their fiduciary duties. An Investment Policy Statement will be unique for each organization based on the characteristics of the plan, but here is a list of considerations for developing a well-crafted document.

Source: Planpilot.com, May 2019

Morningstar: DC Investment Menu Moves Matter

Morningstar researchers found what they termed "significant evidence" that replacement funds outperformed the replaced fund over both future one-year and three-year periods. The researchers noted as the "most surprising" finding, more specifically "unexpected in the context of past research, which has generally noted that replacement funds do no better (or worse) than the funds being replaced."

Source: Napa-net.org, April 2019

Why Your Plan's IPS Is Probably a Fiduciary Landmine

An IPS is a useful tool to help retirement plan fiduciaries demonstrate that a prudent process has been followed when selecting and monitoring plan investments. A well-constructed IPS is considered a best practice and establishes guidelines for selecting and monitoring plan investments while providing a framework for making critical fiduciary decisions. However, many plans that have an IPS are using one that likely creates more risk for their fiduciaries, rather than less risk.

Source: Greenspringadvisors.com, March 2019

Labor Department Says ESG investments Aren't Always "Prudent"

The Trump administration unveiled guidance aimed at the burgeoning socially responsible investment industry that left some investors scratching their heads. The Department of Labor, which oversees retirement-plan funds, published guidelines that said investments based on environmental, social and governance issues aren't always a "prudent choice" and that such factors shouldn't "too readily" be considered as economically relevant by fiduciaries.

Source: Investmentnews.com (registration may be required), April 2018

Developing Investment Policy and Structure

The challenge for plan sponsors comes when trying to satisfy a wide range of participant investment styles, while also maintaining simplicity to help ease participants' decision-making and minimize overall plan and participant risk. This article reviews four key considerations for your investment policy and selection.

Source: Planpilot.com, January 2018

Is an Investment Policy Statement Right for Your Plan?

Some plan sponsors create an investment policy statement to provide a framework for managing investment decisions. Yet, not all plan sponsors believe an IPS is the best vehicle for defining a plan sponsor's strategy for investment oversight. This is a brief discussion of some of the factors plan sponsors may want to consider as they evaluate the role of an IPS with respect to their plan.

Source: Troweprice.com, December 2017

These 401k Lawsuits Show the Value of Investment Policy Statements

An investment policy statement is essentially the business plan for a portfolio. For 401k fiduciaries, the IPS serves as a critical governing document, one that should be carefully crafted, periodically reviewed and updated, and diligently followed. Two recent lawsuits against plan sponsors powerfully illustrate this valuable lesson.

Source: Investmentnews.com (registration may be required), November 2017

The Truth and Myth Over the 401k Investment Policy Statement

When you are a 401k plan sponsor, you hear a lot about an investment policy statement and how you need one. Yet many plan sponsors don't know what it is or what it does. This article breaks down what an IPS is, what it does, and what it doesn't do.

Source: Jdsupra.com, October 2017

Standard Items Appearing in an Investment Policy Statement

Although not required by the Employee Retirement Income Security Act, drafting an IPS is a fiduciary best practice. The IPS serves as a policy guide that can offer an objective course of action to be followed when emotional or instinctive responses might otherwise motivate less prudent action. Here are some standard items appearing in an investment policy statement.

Source: Strategicbenefitservices.com, September 2017

Does Your Investment Policy Statement Have Gaps?

If your IPS has problems or gaps, they can create legal problems, but it is not too late to fix them. Your IPS should be reviewed regularly for needed changes. Here are some red flags.

Source: 401ktv.com, August 2017

The 401k Plan Investment Policy Statement

A road map for selecting 401k investments helps keep the plan's offerings consistent. And well-defined criteria for regularly evaluating the investments ensures that the fund managers are investing the plan's assets in a manner consist with your expectations. Once in place, a 401k investment policy statement can provide evidence that the plan sponsor is dutifully acting as a fiduciary when it comes to overseeing the plan's investments.

Source: Forusall.com, June 2017

The Misperception of Fiduciary Risk and Active Management in DC Plans: A Legal Perspective

Plan sponsors face increasingly complex fiduciary requirements, as well as pressure to provide an optimal plan experience for participants at a reasonable cost. Making investment selection decisions under these conditions can prove challenging. This white paper aims to help fiduciaries navigate the waters of plan investment selection and monitoring processes.

Source: Troweprice.com, March 2017

Investment Policy Statements to Keep the DC Plan on Track

On the one hand, an investment committee that tries to manage its DC plan without an IPS is apt to lose its way. On the other hand, if an IPS is unclear or confusing, it can also lead to bad outcomes.

Source: Callan.com, March 2017

401k Advisers Push for More General Investment Policies As Fiduciary Safeguard

The policies governing plan sponsors' investment decisions in 401k plans are adopting language that's more general rather than prescriptive in nature, as a way to safeguard against fiduciary breach and future legal action, according to advisers and legal experts.

Source: Investmentnews.com (registration may be required), November 2016

The Investment Policy Statement Tightrope

A well-crafted investment policy statement can be one of your most effective governance tools. Many sponsors are also finding, with the intensified litigation risk surrounding DC plans, that investment policy statements are becoming an increasingly charged topic.

Source: Russell.com, July 2016

How to Conduct an Annual Investment Review

A well-established and implemented investment policy statement is one of your best defenses against potential legal challenges in light of recent court rulings. But it's not enough just to create an investment policy statement, you must follow through on the review procedures it outlines.

Source: Investmentnews.com (registration may be required), June 2016

What to Avoid When Creating an IPS

An Investment Policy Statement is integral to your employee retirement plan benefit. It lays out your goals, approach, methodology and overall mission for this valuable benefit. Like all operating documents its effectiveness is a function of its clarity and flexibility. Here is a brief overview of what to avoid when writing your IPS.

Source: Fiduciaryplangovernance.com, March 2016

What Should a Retirement Plan IPS Contain?

An Investment Policy Statement serves an important role in managing your retirement plan. Aside from a statement of purpose and an overarching statement of the plan's goals and objectives, an IPS should contain several specific key items. Here is a brief checklist.

Source: Fiduciaryplangovernance.com, March 2016

Streamlined DC Investment Menu Could Save Participants Millions

Researchers with The Wharton School at the University of Pennsylvania strive to quantify participants' behaviors before and after a fundamental rethinking of the DC plan investment menu.

Source: Plansponsor.com, January 2016

What Is an Investment Policy Statement and Why Is It Important?

A 3(21) investment advisor can only advise you on the proper course of action. They themselves do not have the ability to make decisions or change policy. The responsibility (and liability) for these actions remains with you. In that respect, when using a 3(21) investment advisor, your Investment Policy Statement becomes all the more important.

Source: Fiduciaryplangovernance.com, October 2015

An IPS Is About Policy

It is not good practice to use your Investment Policy Statement to identify the specific stocks or bonds or funds you will recommend for your client’s portfolio. Those are issues of implementation. One way to think about an IPS is to view it largely about "how" and "why," and not about "what."

Source: fi360.com, September 2015

An Economist's Perspective of Fiduciary Monitoring of Investments

A central thesis is that ongoing oversight is an exercise in risk management and that risk management is a never ending process. The article emphasizes the importance of (a) examining multiple risk factors and not relying on performance numbers alone, (b) understanding the presence of financial leverage (should it exist), (c) clarifying the role of a service provider when an outside party is used, and (d) letting participants know about the type of monitoring being done by an investment committee.

Source: Pensionriskmatters.com, May 2015

How Long Should an Investment Policy Statement Be?

There is no one right way to write an IPS. There is no prescribed set of topics that need to be included. The length of an IPS can be whatever is right for the advisor and the client. For that reason, the appropriate length of an IPS rests with what needs to be said and how detailed the discussion of the selected topics need to be.

Source: Fi360.com, February 2015

Managing Defined Contribution Plan Investment Policy Statements

While ERISA does not explicitly require that retirement plan fiduciaries adopt an investment policy statement, there are important reasons to do so. Learn why adopting and monitoring an investment policy statement is a crucial part of any good fiduciary process.

Source: Jpmorganfunds.com, January 2015

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