If you chose the first statement, you’re correct, and if you
chose the second statement, you’re also correct.
Does your plan already have an IPS? If you aren’t sure, please find out. There’s a possibility that someone in your
organization, at some point, adopted one.
It’s not uncommon for plan service providers to provide a canned IPS or
a fill-in-the-blank template. If your
plan does have an IPS, you want to make sure it isn’t doing more harm than
Read through it and see if it makes sense in the context of
how your plan is actually being managed.
- If it says quarterly reviews will be held, are
- If the IPS says minutes will be taken, are they?
- If it spells out specific triggers to replace
funds, do you follow them?
As a rule of thumb, be very careful about the use of
“shall”, “must”, and “will” statements.
In case the reason isn’t obvious, just picture a plaintiff’s attorney
with a big smile on their face. For
example, let’s say your IPS says a fund will
be removed if it underperforms its benchmark for three consecutive
quarters. If you haven’t followed your
IPS, you could be financially responsible for any losses incurred subsequent to
the point at which the IPS required that fund to be removed. Ouch!
So, don’t paint yourself into a corner with “mandatory-type” statements.
If you’re starting from scratch, developing an IPS,
include enough structure to be able to demonstrate you actually have a “prudent
process” by which the plan’s investment menu will be managed.