Investment Policy Statement (IPS)

Investment Policy Statement (IPS) in the context of an employer-sponsored 401(k) plan refers to a formal document that outlines the guidelines, objectives, and strategies for managing the plan's investment options. This crucial document serves as a roadmap for fiduciaries, plan sponsors, and investment managers, providing clear directives on how to make investment decisions that align with the best interests of plan participants.

Example 1: If the Investment Policy Statement states a conservative approach, the plan's investments might be skewed towards low-risk assets like government bonds and stable value funds.

Example 2: In a growth-oriented IPS, a significant portion of the 401(k) funds may be allocated to diversified equity funds or index funds to achieve higher returns.

Example 3: The IPS may also specify the criteria for selecting and monitoring investment options, such as performance benchmarks and management fees.

By adhering to the guidelines outlined in the Investment Policy Statement, the plan administrators can make well-informed decisions, fostering transparency and accountability while safeguarding the retirement savings of plan participants.

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