What is the significance of an investment policy statement?
Title I of ERISA requires plans to contain a procedure for establishing and carrying out a funding policy consistent with the plan's objectives and the law. ERISA § 402(b)(1). Often this requirement is implemented through an investment policy statement, that is to say a written statement that provides general instructions or guidelines, such as the identification of acceptable classes or types of investments, limitations on investment categories as a percentage of a plan's portfolio, or generally applicable guidelines regarding voting positions in proxy contests, rather than specific instructions as to the purchase or sale of a specific investment at a specific time or specific instructions to vote specific plan proxies a certain way.
Although it admits that investment policy statements are not specifically required under ERISA, the Department of Labor asserts that these statements serve a legitimate purpose in many plans by helping to assure that investments are made in a rational manner. Department of Labor Interpretive Bulletin 94-2.
The Department of Labor believes that investment policy statements are part of the "documents and instruments governing the plan" within the meaning of ERISA § 404(a)(1)(D). This implies that a failure to live up to terms of an investment policy statement could be a fiduciary violation under ERISA. It suggests that plan sponsors should carefully review the investment policy statements for unwanted language.