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

Constructing an effective IPS for 401(k) plans is part art and part science. Its structure differs from the traditional IPS template offered by the CFA Institute in that a 401(k)IPS, at least one for a plan using the 404(c) safe harbor provision, necessarily must contain at least three materially different investment objectives. This contradiction runs counter to the traditional IPS structure. We don't have the space here to provide a detailed outline of a modern 401(k) IPS, but we can offer these five tips to help you build a better 401(k) IPS:

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