The 40(1)k investment policy statement represents thefirst line of defense for plan sponsors. (Photo:Shutterstock)

Long, long ago in a far distant time (the 1980s), 401(k) plans were the plain-vanilla offspringof profit-sharing plans. In those days, before the great mutualfund confiscation of the retirement plan industry, 401(k) plans were simple creatures.

But to paraphrase Bob Dylan: "The times they havea-changed."

In the ensuing decades, the 401(k) grew more complex. What once was asingle kitten confined to a small cardboard box became arambunctious herd of cats. Good luck with that.

With all these interconnected parts whizzing around like so manyelectrons randomly orbiting an expanding atom, is it any wonderERISA experts see how an Investment Policy Statement ("IPS") canhelp (see "What is a 401(k) Investment Policy Statement(IPS)?" FiduciaryNews.com, November 26, 2019).

From the point of view of the plan sponsor, the 401(k) IPSrepresents the first line of defense. It clearly spells out thenature and intent of the plan, as well as the structured proceduresdesigned to implement that nature and intent. This can save many aplan sponsor's neck.

Really. It's all about dotting the i's and crossing the t's. Alla plan sponsor need do is follow the instructions.

More precisely, all the plan sponsor needs to do is to make surethe service providers follow the instructions of the 401(k) IPS.For it is the service providers that have the greatest command ofall those swirling electrons.

And who exactly are those poised to discover a misplacedelectron at the peril of plan sponsors? Why, none other than yourfriendly neighborhood regulators (and perhaps a tort attorney ortwo).

A lot of things can go wrong in a 401(k) plan. That's to beexpected. Modern 401(k) plans are just too big for things not to gowrong.

It's really nothing to worry about.

As long as you're doing what the IPS said, there's a lot wiggleroom for forgiveness.

Of course, this wiggle room works both ways – and that's whysome are leery of 401(k) Investment Policy Statements. If you dropthe ball in any way, you've got liability exposure.

In a sense, the IPS itself becomes just another one of thoseelectrons.

In this case, however, the trajectory is less random. Failure toabide by the IPS is merely an example of sloppiness. It either canbe sloppy wording in the original plan or sloppy execution. Eitherway, it's controllable.

When it comes down to it, though, a 401(k) Investment PolicyStatement has never been more important for a plan sponsor tocreate, maintain, and follow.

READ MORE:

• Fiduciary distractions hurt planparticipants
• Where 401(k) sponsors go to learn
• What? Plan sponsors worry?