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IRA Distribution Strategies Expert


Accredited Investment Fiduciary - AIF®

Investment policy statements are useful particularly in situations where all plan assets are invested in a single pool and the sponsor wants to insure that the risk profile of the investments matches the liabilities the plan will incur. For example, a defined benefit plan promises retired employees a certain level of income for life. It would be inappropriate to invest that plans assets in highly speculative securities so an investment policy statement spelling out the allowable investments for the plan would be advisable. This also provides a road map for the plans’ investment managers as to what securities are allowable in the portfolio. In past cases the courts have found that the lack of an investment policy statement was evidence which lead to a finding of fiduciary breach.

401(k) plans probably don’t benefit as much from an investment policy statement. Typically the work force is a diverse group in terms of age and compensation. A 55 year old employee does not have the same time horizon or risk profile as a 25 year old.

This is not to say that the plan doesn’t need or wouldn’t benefit from an investment policy statement. Most people in the ERISA arena will say you definitely do need a policy statement. Investment policy statements for 401(k) plans tend to be more focused on the diversification of available investments and often provide some mechanism for monitoring investment performance and fund replacement, when necessary. Offering diversification in assets would address the needs of investors in different stages of life and that have differing financial resources. A written policy statement also provides new investment committee members with insight into what prior people overseeing the plan were thinking.

An investment policy statement that is not followed can be as bad as not having a formal policy at all. It is a good idea to consult your legal council or an ERISA attorney before implementing an investment policy for the plan.

Documenting the search for your providers and reviewing those decisions periodically is an important first step toward satisfying your duties as a fiduciary. Reviewing plan provisions and investments on, at least, an annual basis is also important. Be sure to keep minutes for any meeting you have regarding the plan. Make sure that you can document your oversight of the plan. Create a paper trail. As a fiduciary you are not responsible for being right 100% of the time but you must be able to show that the decisions you made were well thought out, meet the standard of what an expert in the field might choose and most importantly, the decisions were made solely in the best interest of plan participants.   Can I rely on 404(c) ?


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