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Investment Policy Design


The guidelines to your company’s retirement plan. 


Have you ever wondered how your employer picks the investments for your 401k?  Is it a popularity contest, a broker’s recommendation or something else?  One of the most important responsibilities that a company has to its employees is selecting the investments for the retirement plan.  That decision will impact most employees and their beneficiaries for a significant portion of their life.  A thorough selection and monitoring process will also help limit an employer’s liability in the performance of those investments.  In most retirement plans available today, the responsibility for the ending value of their retirement account sits on the shoulders of the employee.  The result of a good investment selection process is that employees are interested and enthused about putting their own money into the plan.

If you must make a decision that may be called into question in the future, it is best to document the reasons for the decision.  It is especially important to validate any decision that deals with employee money.  Many employers create an investment policy statement to justify their retirement plan decisions.  This is a logical strategy to include in a company’s investment policy statement. 

1. Define and assign the responsibilities of all involved parties.
2. Establish a clear understanding for all involved parties of the investment goals and objective of the retirement plan assets.
3. Establish a clear understanding of the selection process for investment options and companies that manage those options.
     a.Selection, monitoring and control procedures
4. Establish a basis for evaluating investment results.
     a. Investment option guidelines
     b. Delineate diversification of asset class options
     c. List performance goals
     d. Show how investment results will be reported and evaluated. 
     e. Show how investment manager are selected
     f. How will investment managers be evaluated
     g. To what standards or benchmarks will the retirement plan be held

There are a significant number of details that are in a well-crafted investment policy statement.  In its creation, it is important to remember that investment performance is not an exact science.  An investment policy statement must be sufficiently detailed to justify the decisions made, but adequately flexible to allow for changes within the economy, and the employer. (Back)