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Are you impressed by reams of due diligence reports? Do they imply asignificant volume of work and effort? Does the size justify thefee?

If your answers to any of these questions are "yes," be careful.Your eye might be off the ball. You might be more concerned withprocess, rather than results.

And it's results that matter most.

When considering whether to adopt an Investment Policy Statement (IPS) for your401(k) plan, it's necessary to keep in mind why IPSs exist in thefirst place, (see "What is the Primary Purpose of a 401k IPS?"FiduciaryNews.com, January 7, 2020).

A 401(k) IPS can contain a lot of material. After all, itcreates the system by which the 401(k) plan operates. But it shouldbe written more like a series of guidelines, not as a set ofstandard operating procedures.

By avoiding detail, the plan sponsor avoids needlessly slippingon the banana of omission. Even if it makes sense, it may bedangerous to include extraneous steps. It's not required and it'sjust too easy to accidentally forget to fulfill them. That can geta plan sponsor in a heap of trouble.

And getting in a heap of trouble is not the purpose of a 401(k)IPS.

A 401(k) IPS needs to, above all else, protect. Itneeds to protect the interests of plan participants. It also needsto protect the plan sponsor. A well crafted IPS accomplishes thisthrough words precise enough to protect, but broad enough to allowsome discretion.

It's this latter requirement that proves the toughest. Oftenimmersed in a world of ISO 9000, plan sponsors can mistaken view a401(k) IPS as just another tool for quality management and qualityassurance.

There's a big difference between the allowance for contingencyfound in other businesses and the restrictive compliance boundariesof regulated retirement plans. Indeed, for example, engineers willincorporate a certain amount of "tolerance" in theircalculations.

This allows engineers to make sure the perfect is not the enemyof the good. A bridge that is engineered too rigidly will snap(rather than sway) at the first unusually high gust. Yet, theformulae used in building this bridge are as precise as can be.It's just that engineers are allowed to build in a tolerance forsituations that are imprecise.

Perhaps plan sponsors, at least those who are engineers, willbetter understand how to approach their 401(k) plan's IPS. Yes, theguidelines can focus on an ideal, but the IPS document itself mustallow for a similar tolerance.

Because if plan sponsors are too worried the IPS is more of aliability than a protection, it will be more difficult for them touse it to protect plan participants.

READ MORE:

• Retirement plan auditors: What plan sponsors needto know about EBSA's CPA study
• A warning to all 401(k) plan sponsors who assumetoo much
• 401(k) education needs  more hands-onlearning- Carosa