Develop and maintain an investment policy statement

An essential function of the Retirement Plan Committee is to monitor all plan investments. Given the expertise required, however, often a separate Investment Committee is established to carry out this important fiduciary duty. Regardless of its structure, when undertaking its investment management duties your Committee should:

• Establish an investment policy statement
• Closely monitor the performance of investments and select additional or replace funds as necessary
• Review investment fees and compensation to ensure they are deemed necessary and reasonable
• Closely monitor plan’s adjusted funding target attainment percentage and consult with plan’s enrolled actuary regarding changes that may impact the administration of the plan
• Hire/fire and supervise investment advisors, and ensure they have the expertise necessary to provide guidance to achieve your investment and funding goals

The cornerstone to mapping out how your plan will approach investment decision-making (e.g., selection of investment options, selection of investment managers and evaluation of investment performance) is your Investment Policy Statement (IPS). This written document should also convey how you will measure and monitor actions to further the plan’s clearly-defined objectives. It represents your strategy for achieving plan goals and should serve as an integral part of the Committee’s review and decision-making process. The IPS will include specific guidelines including:

• Statement of purpose for the policy and plan
• Approach to performance and measurement standards
• Monitoring of investment options
• Investment change process
• Coordination with the plan document
• Roles and responsibilities of the Committee, advisors, etc.

Although ERISA doesn’t specifically mandate that retirement plans adhere to an investment policy statement, the Department of Labor has advised that ERISA requires fiduciaries to consistently engage in a prudent process of establishing and carrying out funding policies in line with the objectives of the plan. With a sound process articulated in a written IPS, fiduciaries can better demonstrate that any actions taken were in the best interest of the plans’ participants. Your IPS should be reviewed periodically (at least annually) and revised to reflect any changes in investment policy or funding goals of your plan.

Prudential has developed a Sample Investment Policy Statement (IPS) to use as a template if your plan does not currently have one. A Sample IPS can be provided upon request and is intended to be used for reference only.