Defined Contribution A strong investment policy statement (IPS) is your plan’s GPS

Sue Walton

September 23, 2025

KEY TAKEAWAYS

  • An investment policy statement (IPS) is not required, but it is a best practice.
  • An IPS can provide clarity regarding plan objectives and accountability.
  • Consider taking the time to regularly review and update your IPS.

Whether you’re driving, flying or walking, GPS can help you navigate unfamiliar routes and ensure you reach your destination.

 

The same holds true for having an investment policy statement (IPS). An IPS is a useful tool to help make sure your client’s retirement plan stays the course. The Employee Retirement Income Security Act (ERISA) doesn’t require plan sponsors to have an IPS, but having one in place — and reviewing it regularly — has become a best practice. A strong IPS may support participants in reaching their retirement destination while helping plan sponsors follow the rules of the road and manage fiduciary risk.

Why do small plans need an IPS?

 

In its 2025 Defined Contribution Survey, PLANSPONSOR found that larger plans are more likely to have an IPS, but it’s important to remember that small plans have the same fiduciary responsibilities as large plans under ERISA. A well-written IPS may provide these benefits:
 

  • Provide a road map for financial professionals and plan sponsors to confirm plan objectives, set the investment menu and create a process for selecting and monitoring investments.

  • Offer clarity on roles and responsibilities of parties involved with selecting and monitoring the investment options for the plan, potentially increasing plan oversight and accountability.

  • Memorialize a prudent process for making investment decisions, which could serve as a core defense against allegations that fiduciaries acted imprudently.

What to include in an IPS

 

Whether your client already has an IPS in place or is starting from scratch, it’s helpful to review some of the key elements you may want to include. In the absence of specific guidance from ERISA, consider including the following sections:

 

  1. Purpose and scope: Provides an overview of the specific guidelines and scope of the IPS.

  2. Plan objectives: Contains a brief description of the purpose and objective of the defined contribution plan, which might include goals such as promoting retirement savings and providing participants a range of investments.

  3. Definition of duties: Describes the roles and responsibilities of various parties involved with selecting and monitoring the investment options for the plan, including the investment committee, investment manager and financial professional. The IPS should also describe the plan’s proxy voting policy.

  4. Investment option selection and evaluation criteria: Includes a well-defined, objective process for the selection and evaluation of the investment options using criteria consistent with the overall goals of the plan. The policy should also establish a framework for the monitoring of a plan’s investments, including benchmarking investment results and expenses.

 

Share-class selection is an important cost consideration that should be evaluated when selecting investment options, as different expenses may apply to the different share classes. Some share classes may include payments made by the fund(s) to service providers for services provided to the plan. When selecting a share class, plan fiduciaries should consider the extent to which participants would benefit from such payments, including how they may be allocated to plan participants.

 

This is by no means an exhaustive list, and there may be specific areas you need to address that are not included. For example, you may want to consider adding a formal fee policy that includes a cadence for review and specific metrics to evaluate total fees, including investments and administration costs.

 

Having a well-defined and clearly articulated IPS is key in today’s challenging investment and regulatory landscape. The IPS fulfills a vital role in helping to lay the foundation of a plan sponsor’s overall governance structure and may help to ensure that fiduciaries achieve their obligations. Fiduciaries must follow the contents of the IPS, so it may be a good idea not to make it too restrictive or prescriptive. It should strive to be an effective guide for decision-making. A word to the wise: The worst thing you can do is have an investment policy statement that you do not follow. 

Read important disclosures

Sue Walton is a senior retirement strategist with 27 years of industry experience (as of 12/31/2024). She holds an MBA from DePaul University with a concentration in finance and a bachelor’s degree in business administration, economics and international business from Marquette University.

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