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There's that old saying "You can't see the forest for thetrees." While the trees may prevent you from seeing the bigpicture, it's the weeds that trip you. The devil is in the detailswhen it comes to a 401(k) investment policy statement (IPS). Thosedetails are like weeds. Not only can they grow prolifically, butthey can be the very thing that trips you up.

Before getting into the weeds of the IPS, it's critical you gobeyond them, indeed, well beyond even the trees. Picture your IPSas a vast forest, an ecosystem that expresses theinterconnectedness of your 401(k) and guides it to its ultimate goal (see"5 Critical Elements Every 401(k) IPS Must Containto Achieve Its Primary Purpose," FiduciaryNews.com, January 14,2020).

Before you write the first word of your IPS, you first need toidentify your strategy. This represents the backbone of your IPS –a stack of essential vertebrae from which spring the details of therib cage.

To identify this strategy, you must know your strategicobjective. That's the primary purpose of the plan. As we've statedearlier, the plan's primary purpose is to protect and serve. Itmust protect the best interests of both the plan sponsor and theplan participants.

Only by doing this can the 401(k) best serve the two parties.For plan sponsors, it means happy (and productive) employees. Forplan participants, it means one less thing in life to worryabout.

What's the difference between the strategy and the tactics foundwithin a 401(k) IPS?

The best way to answer this is through an example. We'll use avery broad example. Let's consider a favorite of many:benchmarking.

Benchmarking has become a mainstay topic for plan sponsors. Itallows them to continually monitor, assess, and take actionregarding plan policies and providers. How is this achieved?

It's tempting to focus immediately on tactics. That is, toidentify and collect data in popular information silos. Forexample, when it comes to investments, the silo may be performance.When it comes to plan policy, the silo may be participationpercentage. When it comes to plan effectiveness, the silo may beaverage deferral percentage. When it comes to plan achievement, thesilo may be average participant account size.

You get the picture. Everything is neat and measurable. But isit meaningful?

You won't know the answer to that question if you don't have astrategy that answers the question: Why are we benchmarking in thefirst place? And, in the end, the answer to that question must goback to the primary purpose of the 401(k) IPS.

In other words, the answer should be: "We are benchmarking toimprove the ability of the plan to protect and serve its corporateconstituents."

What does this imply?

First, the benchmarks chosen must offer consistent and reliabledata. Second, the benchmark comparatives much specify the movementobjective.

To focus just on the case of investments, are you looking forraw performance, relative performance, and, in either case, overwhat time periods? Are you even measuring performance properly? Areyou unknowingly systemizing poor decision-making processes exposedby behavioral finance research?

You see where this is headed. That's why it's critical you layout the strategy of your 401(k) IPS before you get down to thebrass tacks of tactics.

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