You Want It In Writing! By: Diana PowellESQ. 2012.10.24

not to find out new principles, or new arguments, never before thought of … but to place before mankind the common sense of the subject, in terms so plain and firm as to command their assent, and to justify ourselves in the independent stand we are compelled to take.”

-Thomas Jefferson, “The Declaration of Independence”

To have legal significance ideals, rights and responsibilities are codified and reduced to written documents. Think “The Declaration of Independence” and “The Bill of Rights,” just to name drop some “heavy hitters.” In fact, ordinary citizens throughout the United States rely on these documents’ rights and principles found within their texts, every day!

So too do companies with regard to their 401(K) plans, owe their employees a fiduciary duty to put their employee benefit plans in writing. Under the regulations in ERISA 402(a) (1), employers are required to codify the employee benefit plan in writing, contained in a written document referred to as a Summary Plan Description (SPD).

ERISA 402(a) (1) – Every employee benefit plan shall be established and maintained pursuant to a written instrument.

However, there is no definitive regulation within ERISA that requires the Investment Policy Statement (IPS) be put in writing. How can this be when Investment Policy Statements can serve such an integral part of the employee benefit plans?! Why hasn’t the DOL responded in a definitive way and regulated that the IPS should be made into a written document akin to the SDP? I think it is time they did!

According to DOL Bulletin 94-2, Investment Policy Statements “serve a legitimate purpose in many plans by helping to ensure that investments are made in a rational manner and are designed to further the purposes of the plan and its funding policy … to provide general instructions or guidelines to be applied in all applicable … types of investments.”

It seems to be indisputable that an Investment Policy Statement is an integral part of a company’s employee benefit plan. Therefore, it is completely reasonable that employers be legally required to codify these IPS’s as part of their documentation process, just as with SPD’s. Short of making an official recording (as in spoken) stating what is contained within an IPS, a written account is more practical and more reasonable!

Case Law shows that Courts support the creation of written investment policy statements. In Liss v. Smith, 991 F. Supp. 278 (S.D.N.Y. 1998) the court held that “ERISA does not have a specific requirement that a written investment policy be maintained by the trustee.” In this instance the court found that “such a policy is necessary to ensure that the plan investments are performing adequately and meeting the … needs of the Funds.”

I cannot say why the law hasn’t “caught up” with the best fiduciary practices suggested by the DOL and the Courts – I wish I could! However, I can say that all indications are that there should be a requirement that Investment Policy Statements be put into a written document. An IPS which is reduced to a written document benefits the participants, both employers and employees. To meet the fiduciary responsibilities owed to clients, investment advisers should tell them, “You want it (IPS) in writing!”

Diana K. Powell

Diana K. Powell, Esq. joined Westminster Consulting in September 2012 as Senior Legal Advisor. Previously she was a sole practitioner who advised educational organizations, government bodies and private corporations. Diana was responsible for negotiating agreements for high-tech software corporations...

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