When we first authored a white paper on Investment Policy Statements (IPS) for defined contribution plans in 1999, many DC sponsors seemed reluctant to develop and adopt an IPS. Survey information from the Plan Sponsor Council of America (PSCA) indicates that only about half of DC sponsors maintained an IPS in 1999, and that far fewer smaller employers maintained an IPS. A 1999 BARRA RogersCasey/IOMA poll found almost two-thirds (63%) of plan sponsors with less than 250 participants did not have a written IPS for their 401(k) plan.
“A well-crafted investment policy statement furnishes the plan sponsor with the best vehicle available for demonstrating prudent fiduciary conduct.”
Since 1999, the written IPS has become far more common. By 2007, PSCA determined that over 80% of DC sponsors had adopted a written IPS, including more than 90% of sponsors of plans covering over 5,000 participants. We’d like to believe that our 1999 white paper (and various speaking engagements following up on the paper) played some small role in the greater acceptance of IPS for DC Plans. But while we are encouraged by the increased rate of adoption of investment policy, there are still many plan sponsors—particularly those running smaller plans—that have yet to develop a policy statement. And while larger plans are more likely to have a written policy, there are still many large plan sponsors that have no policy statement. We believe that DC sponsors without an IPS are unnecessarily exposed to fiduciary liability. There is clearly work to be done—hence—this update to our 1999 white paper.