Investment Policy Statement (IPS)

An Investment Policy Statement (IPS) is a written document governing how a retirement plan's assets are to be managed. It defines the investment philosophy, decision-making framework, and processes that plan fiduciaries follow.

  • Not legally required by ERISA statute, but strongly recommended by the Department of Labor (DOL) as evidence of procedural prudence
  • DOL Interpretive Bulletin 2016-1 states that an IPS is "consistent with the fiduciary obligations set forth in ERISA Section 404(a)(1)(A) and (B)"
  • Once adopted, the plan fiduciary must follow the IPS; failing to follow your own IPS is a fiduciary breach

Exam Tip: Gotchas

  • An IPS is NOT legally required by ERISA, but the DOL expects one as evidence of a prudent process.

Key IPS Components

  • Plan's investment objectives and goals
  • Roles and responsibilities of fiduciaries, advisers, and service providers
  • Asset classes and types of investment options to be offered
  • Criteria for selecting, monitoring, and replacing investments (quantitative and qualitative benchmarks)
  • Rebalancing guidelines
  • Proxy voting policies
  • Documentation and review procedures

The IPS Is a Double-Edged Sword

  • While an IPS demonstrates prudence, failing to follow your own IPS creates fiduciary liability
  • Fiduciaries must regularly review and update the IPS as circumstances change

Exam Tip: Gotchas

  • An IPS is a double-edged sword. While it demonstrates prudence, failing to follow your own IPS creates fiduciary liability.