SBS Offers Checklist for Investment Policy Statements

August 1, 2014 ( – While the Employee Retirement Income Security Act (ERISA) does not require retirement plan sponsors to have an investment policy statement (IPS) for their plans, it is a highly recommended best practice.

Strategic Benefit Services (SBS) notes that for 401(k) and ERISA-governed 403(b) plans, an IPS:

  • Documents there is a defined process by which the plans are being managed;
  • Helps prevent fiduciaries from making unsteady investment decisions when markets are turbulent;
  • Identifies plan fiduciaries and helps them manage their responsibilities;
  • Defines the roles and responsibilities of plan trustees, advisers, custodians and investment managers;
  • Explains how to hire, monitor and replace investment managers when necessary;
  • Provides evidence that a clear process and methodology exist for selecting and monitoring plan investments; and
  • Is a well-articulated, documented procedure for investment selection and ongoing investment evaluation, which are fiduciary obligations.

Employers should begin researching their IPS by gathering and reviewing all of their plan documents, SBS says. This includes trust documents, summary plan descriptions, written minutes, current vendor service agreements, investment performance reports, enrollment reports, participant educational material, procedural manuals, and Form 5500 paperwork.

These documents can help plan sponsors determine whether:

  • Plan documents identify the trustees and named fiduciaries;
  • The plan is intended to be compliant with ERISA Section 404(c);
  • There is a clear understanding of the plan expenses and whether they are reasonable;
  • There is a formal process for making investment-related decisions;
  • There is a clear paper trail/documentation relative to the process being followed;
  • It is clear who has the authority to make investment decisions; and
  • The trust documents prohibit certain asset classes.

SBS notes that no single approach is appropriate for everyone, but an IPS typically includes:

  • The Plan. A general explanation of the purposes and goals of the IPS, acknowledging the applicability of ERISA fiduciary standards and rules. this section also addresses whether the plan is intended to be compliant with ERISA Section 404(c).
  • Purpose. This identifies the objective of the IPS and states the intention to review the policy quarterly, or at least annually, and to amend it as necessary.
  • Investment Objectives. This section identifies the plan investment philosophy and the processes for the selection, monitoring and evaluation of plan investments.
  • Duties, Roles and Responsibilities. This language generally defines the roles of the parties involved in the management of plan assets and administration of the plan. If there is an investment committee, the members are identified and their roles stated.
  • Investment and Manager Selection. Includes policies and guidelines to be followed when selecting investments and investment managers.
  • Investment Monitoring and Reporting. Provides a process by which investment options are regularly reviewed and evaluated for continuing appropriateness.
  • Investment Manager Monitoring and Termination. This section states how investment managers will be monitored and how often. It also explains how underperforming managers will be evaluated and replaced if need be.
  • Coordination with the Plan Document. Clarifies that in the event of conflict between the IPS and the plan document, the plan document should be followed.
  • Controlling and Accounting for Investment Expenses. This section defines the process by which expenses will be reviewed to determine if they are reasonable.

SBS says the IPS needs to be followed and its content communicated to all relevant parties, including plan participants, investment managers and service providers, so they can be aware of what the plan involves and whether it is in compliance with the law. It should also be reviewed and updated regularly, since the needs and expectations of the plan and participants can change over time. As with any plan document, SBS recommends that the IPS be reviewed by legal counsel prior to being implemented.

Strategic Benefit Services is a provider of advisory services, retirement plan offerings, and employee benefits products. More information about the company can be found at