For many years, ERISA lawyers argued the merits of creating aninvestment policy statement for 401(k) plans. They debated whethera written IPS reduced fiduciary liability or increased it? In fact,the U.S. Department of Labor does not require one. On one side ofthe argument, some believe putting something in writing onlyprovides one more piece of ammunition to supply the DOL. On theother side, there are those who feel outlining an investment duediligence process through an IPS, and then documenting itssuccessful implementation, can reduce fiduciary liability.

Constructing an effective IPS for 401(k) plans is part art andpart science. Its structure differs from the traditional IPStemplate offered by the CFA Institute in that a 401(k)IPS, at leastone for a plan using the 404(c) safe harbor provision, necessarilymust contain at least three materially different investmentobjectives. This contradiction runs counter to the traditional IPSstructure. We don't have the space here to provide a detailedoutline of a modern 401(k) IPS, but we can offer these five tips tohelp you build a better 401(k) IPS:

Is the IPS tied to the corporate vision andmission? Companies spend hours developing a strategy. It'simportant the 401(k) plan support that vision. The IPS must bewritten in a manner consistent with the plan sponsor's vision andmission. That includes incorporating company demographics.

Does the IPS have meaningful and clearobjectives? Here we mean tying together 404(c) investmentoptions to plan demographics and investor personalities with thedue diligence process used to select and monitor those options.

Is the IPS measurable? Meaningful and clearobjectives are one thing, but it they aren't measurable, the IPSfails. It often helps by beginning at the finish. Identify what'smeasurable – participation, deferral rates, hard dollar savings –and work backward.

Does the IPS allow for independent duediligence? Don't believe for a moment the IPS offered by athird-party investment provider fits the plan's needs. Thesegeneric statements often only fit the provider's needs.

Is the IPS properly communicated? If a treefalls in the forest and there's no one there, does it make a sound?Likewise, printing an IPS on the remnants of that tree serves nopurpose if there's no strategy to communicate the document'spurpose to plan trustees and fiduciaries, employees andvendors.

The DOL wants to focus on process and the IPS offers a directroute to meet this objective. But be warned, an improperlystructured IPS could lead to compliance troubles. The 401(k) plansponsor is best served by working with an independent fiduciaryconsultant to draft the IPS.