Broadly, an investment policy statement (IPS) is intended to outline the rules and policies pertaining to a pool of assets. For this reason, it may include asset allocation guidelines, risk tolerance, and liquidity needs. It is important to take into account that allocation decisions pertaining to nearly all defined contribution plans are determined by the individual decisions of the participants in the plan. As a result, the IPS for defined contribution plans is unique and requires more specific policies, documentation, and construction guidelines.
While the Employee Retirement Income Security Act (ERISA) does not require that all committees utilize an IPS, a properly drafted IPS can serve as a roadmap for the selection and monitoring of investment options offered to plan participants. Additionally, the IPS has become a document regularly requested by auditors and the Department of Labor (DOL) when it conducts reviews of plans.
There is no specific format or technical language that an IPS is required to include. However, there are some categories of content that you might considering incorporating into a best practice IPS.
To better understand how to create and maintain a best practice IPS, read our guide covering: