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Investment Policy Statement   

 

ERISA requires the Plan fiduciaries to adopt and adhere to an investment policy.  ERISA does not require that this policy be in writing.   However, it is prudent for plan fiduciaries to outline the systematic and disciplined guidelines they employ in selecting and monitoring the plan investments in a written ďInvestment Policy StatementĒ. 

 

The written investment policy statement provides the plan fiduciaries protection from liability resulting from investment losses incurred by the Plan (or its participants if the Plan permits participant-directed investments).  An investment policy statement may include:

 

Investment Policy Objectives  A statement that the employerís Plan is intended to provide a source of retirement income for its participants and that the intention of the investment policy statement is to establish investment principles, to document the Planís investment objectives and establish performance guidelines for the evaluation of investment decisions.  If applicable, it may also state the Planís intention to satisfy the requirements of ERISA Section 404(c).

 

Responsible Parties  A listing of the parties who are responsible for deciding the number and types of investment options, selecting and/or removing investment options, monitoring investment performance and communicating the risk and return characteristics of each investment option to the plan participants.

 

Investment Objectives  An outline of the realistic parameters for performance and liquidity of the investment program to satisfy the Planís retirement benefit liabilities.

 

Investment Guidelines  These guidelines are to provide the Plan (or, if applicable, the participants) with a listing of a broad range of investment options with various risk/return characteristics to meet the Planís (or the participantís) goals and objectives.  This may include why an investment type or option was selected (or offered for selection) and to which investment benchmark the investment type or option is compared.  The investment guidelines may also outline the standards considered in the investment selection process such as the number of years of historical investment performance, investment peer group performance and expense ratios and investment risk measures (e.g., alpha, beta, standard deviation).  For Planís offering participant-directed investments, the guidelines may also include the frequency and method (e.g., in writing, telephonic, web-based) by which a participant can change investment selections. 

 

Guidelines for Reporting and Monitoring  This would include the frequency of investment performance reporting.  The frequency of committee meetings to monitor investment performance and the standards (as discussed above) to determine the retention, replacement or addition of a plan investment.  The monitoring process may also include changes in the investment options that may be necessary as a result of a change in the Planís funding method, a change in benefit payment options or a change in the participant demographics and needs.  For Planís offering participant-directed investments, these guidelines may include the method by which a plan participant can access account information (e.g., telephonic or web-based access).

 

The investment policy statement may also reference the attachment of the any pertinent information used to facilitate the investment, and reporting and monitoring guidelines.

© 2003 Milberg Consulting LLC  All Rights Reserved

We intend the information in this publication as a general resource, not as legal or plan compliance advice or counsel. If you consider any actions discussed herein, we suggest that you consult a tax or ERISA professional. Milberg Consulting LLC and Barry R. Milberg do not warrant and are not responsible for any errors and omissions from this information.