When doing what’s in the best interests of the employees takes on an entirely new meaning.
Compliance
An IPS must be thoroughly documented and clearly written and understood by all interested parties. Here’s what to include.
Since the plan sponsor tends to rely on third party service providers (usually the recordkeeper) to maintain and operate these web-based gateways, this should be a significant factor when deciding which vendor to select.
The Investment Policy Statement is a legal plan document. It needs to be treated accordingly. This means to deliberate it with diligence before adopting it. Even when it is adopted, it must be regularly inspected and revised as needed.
There are many different types of plans, particularly when plan sponsors pick a 3(21) or 3(38) adviser. Which service provider arrangement a plan sponsor chooses impacts how the IPS will be constructed – and how the relevant parties contribute to that draft.
Including these will make 401k plans safer for plan sponsors and more successful for plan participants.
Unlike a generic vendor agreement, the IPS is a formal plan policy document that defines the parameters between the plan and relevant vendors. This is why it can also be a terrible trap.
Whether a plan sponsor decides to adopt a 401k IPS remains an open question. It’s not a question that should be treated casually. Every plan situation is different. Plan sponsors therefore must conduct a thorough due diligence to determine what’s best for their plan.
Although we’ve seen a broader acceptance of using an IPS, their use is by no means universal and particularly lacking among smaller employers. Perhaps there’s a realization that, if you don’t get the IPS right, you’ll only increase your liability.
When you’re not an expert in an important job that you need done, what do you do?
