6 Components of a 401(k) Investment Policy Statement

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6 Components of a 401(k) Investment Policy Statement

Written Retirement Plan

Though not technically required by the Department of Labor, an Investment Policy Statement offers 401(k) plan sponsors well-defined criteria and principles for prudently overseeing the operations of their plan. The IPS document can provide policies for investment selection and monitoring as well as be the guide by which committee members make decisions. Ultimately, an IPS can help plan sponsors and committees stay on track with the goals and processes of their specific plan.

An Investment Policy Statement can be drafted by the Plan Adviser and should identify the role of the investment committee as well as give guidelines for what types of investments should be included in the plan. It should describe how and when the investments need to be monitored, as well as the reasons that a fund might be removed from the offerings. If audited, this document can provide evidence that the plan sponsor/committees are acting in their fiduciary role.

Here are six things that should be included in an Investment Policy Statement:

  1. The purpose of the 401(k) plan : The IPS should include an explanation of why a company has a defined contribution plan and should introduce this document as the resource for selecting and monitoring investments.
  2. Investment objectives/capabilities: This can include how many investment options the company wants to be available, what type of asset categories will be used, and other goals.
  3. Guidance on monitoring investments: It should be specified if the investments need to be reviewed quarterly or yearly, as well as what criteria should be used to review them.
  4. Asset classes to be included: The statement needs to be carefully worded as to whether the asset classes are required or should simply be considered. This document may be used as the guideline for future decisions.
  5. Instructions on how to select investments and the approach for performance and measurement: The document can suggest what characteristics should be considered when choosing a particular investment. It is important that it provides guidance for the investment committee.
  6. Participant education: By spelling out the requirements for participant education, the IPS can increase the odds that employees understand investment basics as well as how to plan operates.

It is prudent for the fiduciaries of the plan to establish an Investment Policy Statement. This will help guide decision-makers to wise choices regarding plan investments, monitoring of the investments, and employee education. The IPS should be reviewed yearly to make certain that it still applies and that it is being followed by the plan sponsor and committee members. Since DOL audits do happen, the fiduciary of the plan should regularly review and document any processes and decisions made.

At Anson Analytics, we seek to develop an Investment Policy Statement for every 401(k) plan we work with. We come alongside plan sponsors to not only help implement, but also adhere to their IPS.  If you are a plan sponsor and would like more information on Investment Policy Statements, please give us a call at 678.216.0795 or visit us online at www.ansonanalytics.com.

(Source, ForUsAll 401(k) blog)


Samuel J. Sweitzer
Samuel J. Sweitzer
Founder and President of Anson Analytics, Inc. - an RIA firm specializing in Research Based Investment Management for Corporate Retirement Plans and Private Investors. Sam is a Chartered Financial Analyst (CFA) and currently serves as Anson's Chief Investment Officer. Sam resides in South Metro Atlanta with his wife and two daughters.

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