Investment Policy Statement Best Practices

Investment Policy Statement Best Practices

Investment Policies

Use an investment policy statement (IPS) to outline your retirement plan’s investment philosophy and specify procedures. An IPS helps guide your plan’s Investment Fiduciary — the fiduciary responsible for selecting and monitoring retirement plan investment options.

The guidelines and procedures included in the IPS should be followed once an Investment Fiduciary has adopted it. Review the IPS at least annually to assure that it continues to reflect your plan’s investment philosophy and provide appropriate implementation guidance.

Elements of an IPS

The contents of an IPS depend on your specific plan needs and the way the plan is administered. Typically, an IPS includes:

• Purpose
• Roles and responsibilities of plan fiduciaries and service providers
• Plan participant profiles
• Selected investments and philosophies
• General asset classes to be available under the plan
• Criteria used in selecting, monitoring and replacing investment options

Purpose

The purpose section generally includes

• a statement of the intended purpose
• the standards applicable to the Investment Fiduciary
• an overview of the information included in the IPS

Roles & Responsibilities

Fiduciaries and other service providers may include:

• investment committees
• custodians
• trustees
• plan administrators
• investment advisors
• investment managers
• recordkeepers
• participants

Participant Profile

Every plan must be maintained and administered for the benefit of its participants. A participant profile provides the Investment Fiduciary with:

• the investment time horizon
• participant's risk tolerance
• participants’ investment knowledge and education

Selection of Investment Options

This section usually describes the broad asset classes in which your plan may invest; the general criteria underlying the selection of different investment classes and the criteria for selecting, monitoring and replacing investment options. Criteria may include:

• performance and costs compared to appropriate benchmarks and peer groups
• adherence to investment strategy
• description of unacceptable performance or other behavior

Investment Monitoring & Reporting

The Investment Fiduciary’s responsibility does not end with the selection of investment options. It is obligated to monitor selected options regularly over time to determine whether they remain appropriate, are performing as expected or should be replaced. Creating a monitoring and review process can ensure that objectives of the plan are being met.

Option Termination

This section outlines the processes for identifying when an investment option should be placed on a watch list, establishes criteria for termination and procedures for removing the option.

Participant Education & Communication

This section includes communication and education efforts that will be made to enhance participant knowledge about the plan, investments and performance and asset allocation.

To satisfy the safe harbor for participant-directed investments under Section 404(c) of ERISA, several communications must be provided to participants. Additional communications are required under section 404(a)(5) of ERISA. Required communications include:

• a list of available investment options
• announcement of any changes to the available investment options
• resources on where to find additional information about each option

For More Information

If you need more information, contact us or call our National Retirement Product Desk at 1-866-313-7355.

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