The purpose of the Investment Policy Statement (IPS) is to assist your company in effectively supervising, monitoring, and evaluating the management of your Retirement Plan. It’s intent is to establish a clear understanding of the roles and responsibilities of all parties involved including the plan trustees, investment consultant, plan administrator and custodian. This statement is not a contract. It communicates and documents your goals, investment objectives and outlines the procedures to be used. When used properly, it can limit liability, provide consistency, and set expectations for investment performance plus increase the likelihood of meeting plan objectives.
It is the central document that will be used during annual reviews with the plan trustees. It is one of the first documents the DOL will ask for in an audit. Documentation that you are adhering to the IPS is just as important as having one. It has been said that having an IPS that is not being used effectively is worse that not having one at all.
The following are important characteristics of the IPS
- States in a written document the Committee’s attitudes, expectations, objectives and guidelines for the investment of all Plan assets.
- Encourages effective communications between the Committee and service vendors by stating the responsibilities and duties.
- Establishes procedures for selecting, monitoring, evaluating, and if appropriate, replacing investment managers.
- Defines procedures for controlling and accounting for investment expenses
- Complies with all ERISA, fiduciary, prudence and due diligence requirements experience investment professionals would utilize, and with all applicable laws, rules and regulations from various local, state, and federal governments that may impact plan assets.
