An IPS is a document that defines the guidelines and objectives for managing investments within a retirement plan. Although not required by ERISA, plan sponsors should have an IPS as it provides a clear framework for managing investments, and helps ensure consistent, objective decision-making aligned with the plan’s goals. The IPS plays a crucial role in safeguarding participants' retirement savings by guiding investment decisions. Additionally, having an IPS also supports the fulfillment of fiduciary duties.  

A Well-Structured IPS Typically Includes the Following Key Components:

• Purpose and objectives – describe the purpose of the IPS, its role in guiding investment decisions and investment goals of the retirement plan
• Roles and responsibilities – outlines the responsibilities of plan sponsors, investment/retirement committees, fiduciaries and investment advisors, as well as define how decisions will be made and the plan monitored
• Investment objectives and risk tolerance – specifies the goals of expected investment return and acceptable levels of risk
• Asset allocation guidelines – details the target asset allocation strategy across asset classes, such as money market funds, mutual funds, equities, fixed income)
• Investment selection criteria – defines the criteria for selecting investment options with consideration to factors such as fees, historical performance and investment management
• Performance monitoring and evaluation – specifies the frequency of investment performance reviews and establishes benchmarks and performance metrics for evaluating investment options
• Rebalancing strategy – Defines when and how the portfolio will be rebalanced to realign with the targeted asset allocations
• Fees and expenses – emphasize the importance of cost-effective investment management and outlines the cost structure of investment management fees, fund expenses and administrative costs
• Review process – specifies how often the IPS will be reviewed and updated 

What are the Benefits of an IPS?

Once an IPS is established, it’s essential to adhere to it consistently to uphold fiduciary duties and ensure a structured, disciplined investment strategy. 

• By implementing and adhering to an IPS, fiduciaries can enhance transparency, accountability, and regulatory compliance, ultimately protecting both plan participants and themselves.
• A well-crafted IPS can assist the plan sponsor and the investment/retirement committee not only in fulfilling their fiduciary responsibilities under ERISA related to selecting and monitoring the plan's investment options but also in providing clear evidence of prudent fiduciary processes.

An IPS serves as a vital tool for retirement plan sponsors, ensuring investment decisions are made with clarity, consistency, and in alignment with the plan’s goals. Have you established an IPS yet?