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Investment Policy Statement: What is it and should my plan utilize one?

| September 21, 2021

A question we ask many plan sponsors is “how did you select your investments and what is your process?” Many plan sponsors can answer the first part of the question, but they fumble with the second part. Often, they do not have a set process that is repeatable and consistent or even a process at all! This is where an Investment Policy Statement (IPS) comes into play to provide a consistent and repeatable process. This can provide proof that a prudent fiduciary process is being followed with regards to selecting and monitoring the plan’s investment options.

So what exactly is an Investment Policy Statement? Your plan’s IPS will define specifically what it is for your plan. A well written IPS will define the plan’s investment objectives and establish policies and procedures so that these objectives can met in a prudent manner. Think of an IPS as a guide or playbook for selecting and monitoring plan investments. A football coach has a playbook to guide him/her while making decisions during a game, as a Fiduciary for your plan’s investments, you may want to consider doing the same. An IPS will lay out exactly who will be making these decisions, what asset classes will be included in the plan, and identify criteria in which the plan’s investments will be monitored. It will also lay out processes for the removal and replacement of a plan’s investments. The IPS will be specific to your plan’s goals and needs and should be reviewed at least annually.

Although not specifically required by the Department of Labor (DOL), it is considered a best practice to have implemented an IPS. During a plan audit, the DOL may request to review a plan’s IPS to see if a prudent process is being followed. It can also help protect against complaints regarding the processes Fiduciaries have used to select and monitor investments. It is important however, that if a plan implements an IPS, it complies with the rules set forth in such policy. Failure to follow the guidelines set forth in an IPS may open a plan sponsor up to unintended liability.

If you have an IPS and have not reviewed it recently, or have not implemented one at all, feel free to reach out to our team. Our team of retirement plan specialists would be happy to assist you with implementing an IPS for your plan or reviewing an old one that may not be up to date. We can be reached at 845-554-1046.

This information is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

Investment advice offered through Marshall & Sterling Wealth Advisors, Inc., a registered investment advisor. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.