Is Your Investment Policy Statement Still Current? A Practical Reminder for Retirement Plan Sponsors
For many retirement plan sponsors, the Investment Policy Statement (IPS) gets close attention when they first create it, then gradually fades into the background. However, an IPS should do more than sit in a file cabinet. Sponsors who review and apply it regularly can use it as a framework for making investment decisions, documenting oversight activities, and supporting a consistent fiduciary process.
If you have not revisited your IPS recently, confirm that it still reflects how you manage your plan today.
Why the IPS Matters
The Employee Retirement Income Security Act of 1974 (ERISA) requires plan fiduciaries to act solely in the interests of participants and beneficiaries, for the exclusive purpose of providing benefits and paying reasonable plan expenses. Fiduciaries must also act with care, skill, prudence, and diligence when carrying out their responsibilities. The U.S. Department of Labor (DOL) further emphasizes the importance of prudence, diversification, following plan documents when consistent with ERISA, and avoiding conflicts of interest.
While ERISA does not require an IPS for every retirement plan, many plans use one to establish a documented process for investment oversight. A well-maintained IPS can help fiduciaries apply investment criteria consistently over time and provide a reference point for committee discussions and decision-making.
What Is an Investment Policy Statement?
An IPS is a written document that outlines how a retirement plan’s investment committee will select, monitor, review, and, when appropriate, replace its investment options. It generally defines investment objectives, identifies the roles and responsibilities of key parties, and establishes the criteria for evaluating investment options.
For participant-directed retirement plans, the IPS often addresses topics such as diversification, investment performance reviews, fee evaluation, watchlist procedures, and the availability of a reasonable range of investment choices. The document can also clarify who is responsible for carrying out various aspects of the investment review process.
The Risks of an Outdated IPS
An IPS should reflect current practices. When it does not, inconsistencies can arise between documented procedures and actual committee activity.
For example, an IPS may reference investment options the plan has since removed, list monitoring standards the committee no longer uses, or name service providers that have changed. These discrepancies can make it harder to demonstrate that fiduciaries are monitoring plan investments according to an established process.
Regular reviews can help identify areas that need updates and confirm that the IPS remains aligned with the plan’s current structure and oversight practices.
When Should an IPS Be Reviewed?
Many retirement plan professionals consider an annual IPS review to be a prudent governance practice. Additional reviews may be appropriate whenever significant changes occur.
Examples of events that can prompt an IPS review include changes to the investment lineup, updates to the plan’s qualified default investment alternative (QDIA), recordkeeper conversions, plan mergers, modifications to fiduciary responsibilities, or the appointment of a 3(21) investment advisor or 3(38) investment manager.
Not every review results in changes. In some cases, the review simply confirms that the document remains current and continues to support the committee’s oversight process.
What Should Sponsors Evaluate?
An effective IPS does not need to be lengthy or overly complicated. In fact, policies that are highly prescriptive can sometimes create challenges if fiduciaries need flexibility to evaluate facts and circumstances surrounding an investment decision.
During a review, plan sponsors may want to consider whether the IPS accurately reflects current committee responsibilities, outlines a practical investment monitoring process, and describes how the committee evaluates investment expenses. Sponsors should also confirm that decision-making and documentation procedures remain relevant and achievable.
Common signs that an IPS needs an update include outdated fund names, references to prior service providers, watchlist criteria the committee no longer follows, or changes to the plan’s fiduciary structure that the document does not reflect.
Supporting Fiduciary Documentation
The IPS is one part of a broader fiduciary governance framework. Committees may also maintain meeting minutes, investment reports, fee benchmarking analyses, service provider reviews, participant communications, and other records related to plan oversight.
When used consistently, the IPS can serve as the foundation that connects these materials. It provides context for why the committee makes decisions and how it conducts investment reviews over time.
The Bottom Line
An IPS works best when sponsors treat it as a living document rather than a one-time project. Regular reviews can help confirm that it remains accurate, reflects current practices, and supports consistent investment oversight. Now may be a good opportunity to determine whether it still aligns with your plan’s investment process and fiduciary structure.
This is intended for informational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Savant. Please consult your investment professional regarding your unique situation.
Patricia L. Hutchinson
Director of Retirement Plan Services
AIF®, MBA