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Investment Policy Statement - The Fiduciary Role

April 10, 2013 4 Min Read
Roman Leshak, Jr., CPA
Roman Leshak, Jr., CPA Director, Audit & Accounting, Employee Benefit Plan Group Leader

In light of the market volatility over the past few years, there has been an increasing trend in litigation against employers asserting breach of fiduciary duty with respect to the company’s employee benefit plan. Courts have found fiduciaries personally liable, even for acts of which they were unaware or in areas not considered within their scope of responsibility. Not knowing your responsibilities is not a defense; nor is acting with good intentions or in good faith.

The Employee Retirement Income Security Act of 1974 (ERISA), the federal law that outlines the roles and responsibilities of the fiduciary, provides the following general guidelines to help you determine whether you are considered a plan’s fiduciary:

  • You exercise discretionary authority or control over plan assets or plan management.
  • You are specifically identified in the plan’s written documents as a named fiduciary.
  • You have discretionary responsibility in the plan’s administration.
  • You manage the plan or its assets or render investment advice for a fee.

Potential liabilities that fiduciaries may incur can be reduced or eliminated by acting in a procedurally prudent manner and following the key fiduciary standards established under ERISA. In the simplest terms, fiduciaries of employee benefit plans are responsible for ensuring the plan exists solely to serve the interests of the participants and beneficiaries.

To help document that you are meeting your fiduciary responsibilities, ERISA strongly encourages fiduciaries to have an investment policy statement (IPS). The IPS is intended to assist the plan’s fiduciaries by ensuring that they make investment- related decisions in a prudent manner. It outlines the underlying philosophies and processes for the selection, monitoring and evaluation of the investment options and investment managers used by the plan. Although not required, a written IPS is documentary evidence that your plan has a carefully considered investment policy. It provides investment management guidelines and a process for making broad investment decisions, setting investment goals and communicating the policy to employees.

When developing and/or reviewing your IPS, consider the following:

  • The plan’s investment purposes and goals
  • Roles and responsibilities of those involved with plan investments and a declaration that those involved with the plan are expected to adhere to the professional fiduciary standards
  • Guidelines used in selecting and replacing investments and investment managers
  • Procedures for monitoring investment performance and frequency of the review process
  • A clause indicating whether the plan is intended to comply with ERISA 404(c)
  • A statement deferring to the plan document’s provisions if a conflict arises

Plan fiduciaries can consist of an individual or a formal committee. Regardless, there should be regular meetings documented in which the investment policies implemented are reviewed and discussed both internally and with the investment managers or investment advisors  to ensure compliance with the IPS. In addition, it is a best practice to review your IPS on an annual basis to determine whether any changes should be made or if your current investment strategy or asset allocation should be adjusted due to market changes.

Under ERISA, delegating your authority as a fiduciary is allowed and is encouraged when the duties required are beyond the knowledge, expertise, experience or resources of the named fiduciary. However, this delegation of authority is a delegation of function and not responsibility. The fiduciary remains accountable for the actions taken by the party to whom authority is delegated. Therefore, it is imperative that plan fiduciaries monitor not only their own actions and policies but also those of any third parties associated with the administration of the plan.

The IPS is a tool that, when implemented and followed, can reduce the risk of litigation to the plan fiduciaries. If you are unsure about your current IPS or have not reviewed the statement recently, you should contact your current investment advisor or accounting firm to determine what steps can be taken to ensure you limit any potential litigation.

Roman Leshak can be reached at 215-441-4600, or Email.


Contact the Author

Roman Leshak, Jr., CPA

Roman Leshak, Jr., CPA

Director, Audit & Accounting, Employee Benefit Plan Group Leader

Employee Benefit Plans Specialist, Owner Operated Private Companies Specialist, Private Equity-Backed Companies Specialist

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