Understanding the Investment Policy Statement (IPS) For a Participant Directed Plan
Understanding the Investment Policy Statement (IPS) – For a Participant-Directed Plan
What is an Investment Policy Statement (IPS)?
An Investment Policy Statement (IPS) is a crucial document that outlines the guidelines and principles that govern the investment choices available to plan participants.
Why is an IPS Important?
- Clarity and Direction
- Defines the Plan’s investment objectives and the roles of those responsible for the Plan’s investments.
- Consistency
- Establish a consistent approach to investment decisions.
- Accountability
- Set benchmarks for evaluating investment performance, ensuring that the Plan’s investments are regularly reviewed and adjusted as needed.
Key Components of an IPS
- Investment Objectives
- Address the need to balance risk and return, ensuring the participants have options that match their risk tolerance.
- Criteria for Investment Selection
- Develop criteria for selecting investment options, such as historical performance, fees, risk level, and management style.
- Asset Allocation
- Ensure a diverse range of investment options to cater to varying risk tolerances and investment goals.
- Review and Monitoring
- Procedures for regularly reviewing and adjusting the investment options in the plan.
How to Develop Your IPS
- Consult with a Financial Advisor
- Work with a professional to ensure that the plan meets the needs of its participants while adhering to regulatory requirements.
- Establish Guidelines
- Set parameters for asset allocation, investment selection, and performance evaluation.
- Review and Monitoring
- Set a schedule for regular reviews, typically on a quarterly or annual basis.
Developing an Investment Policy Statement is a vital tool for ensuring your retirement plan is managed prudently, consistently, and in the best interests of its participants. For personal assistance, contact our Retirement Plan Team.
