How to Write an Investment Policy Statement, 2nd Edition

CHAPTER 1

ERISA AND THE CHALLENGE OF FIDUCIARY RESPONSIBILITY

The landmark Employee Retirement Income Security Act of 1974, or ERISA, protects the assets of millions of Americans so that funds placed in retirement plans during their working lives will be there when they retire. This act is a federal law that sets minimum standards for retirement plans in private industry.

ERISA requires retirement plans to provide participants with information about the plan, including important information about plan features and funding. It also requires accountability of plan fiduciaries. ERISA generally defines a fiduciary as anyone who exercises discretionary authority or control over a plan’s management or assets within the plan, including anyone who provides investment advice to the plan. Fiduciaries who do not follow the principles of conduct may be held responsible for restoring losses to the plan. Courts may take whatever action is appropriate.

Writing an Investment Policy

The U.S. Department of Labor enforces Title I of the Employee Retirement Income Security Act (ERISA), which, in part, establishes participants’ rights and fiduciaries’ duties. This guide addresses one crucial fiduciary duty in particular—the writing of an investment policy—and gives the reader an example of how to structure a policy, how to write the policy, and why it’s so critical.

And, while the contents of ERISA are immense, it is our intention to help plan sponsors, trustees, and advisors fulfill their fiduciary ...