An investment policy statement (IPS) defines the processes that a company has adopted to make investment-related decisions with respect to the assets of a retirement plan.
The IPS identifies the investment goals and objectives of the plan, establishes how decisions will be made regarding the selection of investments and specifies the procedures for measuring investment performance.
While the law does not require that a plan adopt an IPS, it is very important for an employer to implement for a variety of reasons. By implementing, monitoring, and revising all facets of the plan, the IPS provides a certain level of protection for the employer and fiduciary.
The investment committee is another critical component as they are responsible for performing the tasks, duties and obligations of the IPS review. The committee can be made up of those who participate based on job descriptions or purely on a voluntary basis. Regardless of the reason, all members share the fiduciary responsibility for making decisions on behalf of the members of the plan. Lastly, it is vital to meet at least annually for the investment review.
Many times an employer will introduce a retirement plan only to neglect and thus fail in the monitoring of the plan.
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Written by: Rodney Ragsdale, Vice-President at Cornerstone Insurance Group