An investment policy statement (IPS) serves several key functions, including reducing the employer’s risk and liability as a fiduciary by incorporating prudent investor rules. It clearly defines the investment objectives and constraints of your defined contribution plan. Moreover, the IPS will provide a structured and verifiable process to be applied to current and future investment menu decisions.

Additionally, the process of developing an IPS helps clarify the vision for the plan’s investment menu by addressing key questions such as “How many funds should we offer?”, “Which asset classes should be represented?”, “Should we offer actively managed funds, passively managed funds or both?”

Together with the plan sponsor, Bedel Financial Consulting, will develop an IPS for your plan. Overall, the goal of your IPS is to assure the Plan is administered in the best interest of the plan participants and is compatible with the overall mission and philosophy of the employer. Key components of a defined contribution plan investment policy statement include:

• Clarification of the Plan’s investment-related goals and objectives including the number and types of investment options to be offered 
• A basis for making disciplined investment menu decisions over time
• Documentation of the investment selection process 
• A framework for evaluating investment performance, including:

  – Establish performance standards and benchmarking for the investment options
  – Action plans in the event performance standards are not met over the specified time periods
  – Establish timelines, including probationary periods, for selecting and deselecting funds
   

• Help the sponsor react to questions or requests for change generated by participants, vendors or the media
• The Investment Policy Statement should be reviewed at least annually and revised if needed. Revisions should be considered when:
• A Plan’s investment objectives or funding policies change
• New investment options are introduced in the marketplace
• There is a change in service providers or Plan administrators
• New investment managers or replacement managers are selected
• Performance evaluation guidelines have changed
• A Plan’s acceptable level of risk has changed