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Adopting a Formal Investment Policy

Best Practices, Investment Committee

There’s a lot of talk about having a formal Investment Policy. We think it’s in your best interest to have one and here’s why:

1 A formal investment policy is not required, but it’s essential.

Even though a written policy is not listed as a requirement in the Employee Retirement Income Security Act (ERISA), in the process of a plan audit, the Department of Labor will routinely ask to see a plan’s investment policy statement (IPS), courts have found the absence of a written policy it’s difficult to prove a prudent process is undertaken, and failing to have written procedures for meeting ERISA’s guidelines may render a plan sponsor vulnerable to legal action either from disgruntled plan participants or from the Department of Labor.

2 A formal written policy helps establish guidelines for how the investments will be selected, how they’ll be measured, and how they’ll be monitored.

A formal investment policy provides that paper trail that can demonstrate prudence and justify the process implemented on the plan.

3 An IPS provides consistency for how the investments are managed in the wake of changes in fiduciaries and/or committee members.

It’s a governing document that details the process that anyone stepping into a new fiduciary role can and should be able to follow.

If you need help establishing a formal policy, contact us and we’d be happy to help you establish, implement, and use this tool to assist you in managing the investment selection and monitoring process.

This article is just one in a series on Best Practices for Investment Fiduciaries. Click here to access the entire series.

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