Step Two – A Solid Foundation
Writing and applying an Investment Policy Statement.

“The preparation and maintenance of the Investment Policy Statement (“IPS”) is one of the most critical functions of the fiduciary. The IPS should be viewed as the business plan and the essential management tool for directing and communicating the activities of the portfolio.”

Prudent Investment Practices Handbook
Fiduciary360

While you cannot eliminate liability in the management of your plan, you can limit it with the USE of an Investment Policy Statement.

‘USE’ is emphasized because while some plans have no IPS, often times those that do have one do not actively engage this document during the monitoring of plan investments. In many cases, adopting a formal policy that is not appropriate or complete, or adopting a policy and not using it to manage your plan is worse than not having a formal policy.

Formalizing a Policy for your plan and referencing it as you monitor your investments is perhaps the biggest step you can take toward showing prudence in carrying out your responsibilities as a fiduciary since prudence focuses on the process for making fiduciary decisions.

The Solution
Plan Sponsors need to have a formal plan on how the investments will be selected and monitored. To help with this step, The 401k Service Solution provides a method in Course Two – A Solid Foundation. This course helps plan sponsors understand the importance of the IPS and what it should contain, provides a method to document your plan’s investment policy, and provides you with a written plan including checklists to help ensure this document is actively engaged during investment reviews and updated when necessary.

Take Action

• View the IPS IQ – a short quiz to find out how much you understand about the Investment Policy Statement (answer key is provided)
  
• Contact a PPC in your area to provide you with a customized Investment Policy Statement and checklists for the effective use of this document.