According to the Employee Retirement Income Security Act of 1974, as amended (ERISA), for every qualified company retirement plan (e.g., 401[k], profit sharing, pension, 403[b]) there are certain fiduciary responsibilities for managing the plan assets with the care, skill, prudence and diligence of a prudent expert and by diversifying the investments of the plan so as to minimize the risk of large losses. The IPS documents these fiduciary responsibilities and ensures fiduciaries are adhering to these responsibilities.
When auditing an ERISA plan, the U.S. Department of Labor regularly asks to review the associated IPS. The rationale for this request is in the Department of Labor Interpretive Bulletin 29 CFP 2509.94-2 which references ERISA Sections 404(a)(1)(A) and 404(a)(1)(B, specifically stating, “The maintenance by an employee benefit plan of a statement of investment policy designed to further the purposes of the plan and its funding policy is consistent with the fiduciary obligations set forth in ERISA Section 404(a)(1)(A) and (B). For purposes of this document, the term “statement of investment policy” means a written statement that provides fiduciaries who are responsible for plan investments with guidelines or general instructions concerning various types or categories of investment management decisions.
Under ERISA, all qualified plan trustees have a special responsibility to “prudently” manage their plan assets for the sole benefit of the plan participants. ERISA and the Department of Labor have established the following prudent procedures for plan trustees
  • An investment policy must be established
  • Plan assets must be diversified
  • Investment decisions must be made with the skill and care of a prudent expert
  • Prohibited transactions must be avoided

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