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401(k) Plan: Investment Policy Statement

Published by Kim Moore on Aug 11, 2020 6:00:00 AM

As we have all seen the equity markets fluctuate widely over the past year and seen the impact to our 401(k) account balances, we thought it would be a good time to review the need for an Investment Policy Statement for a 401(k) Plan and discuss why it is important. An Investment Policy Statement will include several items for your Company Retirement Plan:

  • Define the objective(s) of the retirement plan
  • Outline the process of selecting and replacing Plan investments401k investment statement single_binder_16374
  • List any investment type restrictions
  • Detail those parties involved in investment selection and review including each parties’ responsibilities with regard to the Plan investments

The Policy statement should be in writing and periodically reviewed and updated as needed. The statement should be reviewed in conjunction with other company policy statements to ensure there are no conflicts in objectives.  

This Policy is important because it clarifies the need for a continual review of Plan investment performance to ensure underperforming funds are monitored and replaced with other investments that better meet the Policy objectives. It also helps reduce risk for the Plan by defining any investment vehicles (such as derivatives) that are not allowed within the 401(k) Plan Fund Lineup. Finally, it clarifies roles and responsibilities to ensure all objectives are met and there is no confusion regarding overall responsibility for the 401(k) Plan, especially with regard to the investment selection.

Plan fiduciaries have a specific responsibility to ensure Plan investments are not underperforming their peer investments, the Plan offers a diverse range of options in the lineup and that fees charged are reasonable when compared to similar Plan options. A Policy Statement helps ensure these responsibilities are met.

As the Plan sponsor, when it’s time to audit your Plan, it’s vital that you hire an experienced auditor to ensure your Plan is in compliance. At Summit CPA we specialize in retirement plan audits. We have the ability to offer assistance entirely off-site with little or no distraction to your daily office routine. We also offer flat-fee pricing so there are no surprises on your bill when the job is complete. For assistance contact our office at (866) 497-9761 to schedule an appointment.

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