By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC
Does your 401k plan have an updated Investment Policy Statement (IPS)? Although you aren’t required by law to have one, the IPS is one of the primary documents the Internal Revenue Service and Department of Labor request when they visit employers for plan audits. Here’s why you should have an IPS and make sure it is up-to-date:
The IPS will outline the investments that the Investment Committee believe are appropriate for your retirement plan. This may include investment options like target date funds and collective trust funds. Also likely to be included are all 9 combinations of large, mid and small capitalization mutual funds spread across the value, blend and growth spectrum.
Typical excluded investments are any real property (gold, real estate, collectibles, etc.) along with individual stocks, commodities (real or futures), private equity and non-publicly traded stock.
IPS outlines roles and responsibilities
Most IPS’ do a nice job of outlining the Investment Committee’s, Custodian’s, Investment Consultant’s and Investment Manager’s roles and responsibilities. Not sure what you should be doing at those Investment Committee meetings? Review your IPS.
Investment option selection criteria
Process is the key to effective fiduciary compliance. A sound investment option selection process outlined in the IPS serves as a guide to helping the Investment Committee make good investment decisions.
Investment option monitoring
One of the most important roles the Investment Committee plays is monitoring the investment fund menu for the plan. The IPS should outline how that process will work for your plan. Rely on your investment advisor to provide you with the reports and information you need to effectively monitor your investment menu.
Investment option replacement criteria
Sometimes it is necessary to replace a poor performing or inappropriate investment option. Every IPS should outline the criteria for placing an investment option on the “Watch List” and also the process which should be used to remove an inappropriate investment option.
Don’t have an IPS for your plan currently? You can find a lot of nice samples on the internet. If you work with an investment advisor, provision of an IPS should be part of the service package you receive. Since the asset management area is dynamic, it is reasonable to expect your investment advisor to review and update your IPS each year as part of the annual review. An up-to-date IPS is one of the most important keys to fiduciary compliance.
About the Author
Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton has over 30 years of retirement plan consulting and administration experience and has provided consulting services to many Fortune 500 companies including: Aon Hewitt, Apple Inc., AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Car Company, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs and many others. Mr. Lawton may be contacted at (414) 828-4015 or firstname.lastname@example.org.
About Lawton Retirement Plan Consultants, LLC
Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Advisory (RIA) firm providing investment advisory, fiduciary compliance, employee education, vendor management and plan design services to 401(k) plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or email@example.com or visit the firm’s website at: http://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.
This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.