IPS Statements: Don’t Wait Until It’s Too Late
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 is all but incontrovertible that an Investment
Policy Statement is an integral part of a
company’s employee benefit plan. Therefore,
it is reasonable that employers be legally
required to codify these IPSs as part of their
documentation process, just as with SPDs.
Short of making an official recording (as
in spoken) stating what is contained within
the IPS, a written account is more practical
and more reasonable.
It is hard for those of us from the world of
ERISA and of defined benefit and defined
contribution plans and fiduciary responsibility
to understand when Plan Fiduciaries fail to
comprehend the importance of governance
documents. It is even harder to fathom
their failure to appreciate the consequences
when they fail to follow the terms of their
governance documents.
Furthermore, since Tussey v. ABB, Inc. (No.
2:06- CV-04305, 2010 U.S. Dist. LEXIS
45240 (W.D. Mo. Mar. 31, 2010)) ignorance
is no longer bliss. If Plan Fiduciaries and
participants did not think it was important
to carefully and succinctly codify their
governance documents before now, after
Tussey v. ABB, Inc. they now know it is
paramount. Keeping in line with Tussey they
should then follow the principles they have
set forth in their plan documents thereby
fulfilling their duties as fiduciaries.
Tussey v. ABB, Inc. was a case that involved
plaintiffs who were both present and former
employees of ABB, Inc., a manufacturer of
power and automatic equipment, who brought
suit alleging “that their ERISA covered
401 (k) plans were paying their vendors
excessive compensation.” ABB, Inc. had
two committees responsible for managing
the 401(k) plans, Fidelity Management Trust
Company and Fidelity Management and
Research Company. One of the plans was
for collective bargained employees and one
for non-collectively bargained employees.
The Pension Review Committee was the
named fiduciary of the plans and as such
was responsible for selecting and monitoring
the investment options.
One of the key issues involved in Tussey
was the Pension Review Committee’s
failure to follow the terms of the Investment
Policy Statement. In its decision, the Court
found as a matter of fact that “the Pension
Review Committee, which was responsible
for selecting plan investments, failed to
follow its own procedures.” Ultimately,
the United States District Court, W. D.
Missouri, Central Division ruled in favor
of the plaintiffs, finding that the ABB
defendants breached their fiduciary duties.
Some pundits on this topic have suggested
that, especially in the case of ABB, Inc. not
having an Investment Policy Statement
would have been better for the corporation
than having the IPS and then failing to
follow the terms of the Investment Policy
Statement. While the facts of the case
and the outcome certainly give merit to
this argument—ABB, Inc. may not have
been penalized as severely for failing in its
fiduciary duties had it not unsuccessfully
followed its own IPS document. The issue
still remains with regard to ABB, Inc. and
to any other corporation when it neglects
to have an IPS or if it fails to follow the
terms of its IPS is whether that corporation
has failed in its fiduciary duties to its plan
participants. One of the key issues is
whether failing to have an Investment Policy
Statement is a breach of a corporation’s
fiduciary duty, remembering that the DOL
does not yet legally require it. However,
courts continue to look upon the use of
IPS by plan committees favorably. It is an
important issue to keep in mind.
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
It is all but
incontrovertible
that an Investment
Policy Statement
is an integral part
of a company’s
employee benefit
plan. Therefore, it
is reasonable that
employers be legally
required to codify
these IPSs as part of
their documentation
process, just as with
SPDs.”
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.”
There are no clear explanations as to why
the law hasn’t “caught up” with the best
fiduciary practices suggested by the DOL
and the Courts. However, best practices
and Court rulings as well as comments from
the DOL continue to indicate that there
should be a requirement that Investment
Policy Statements be put into a wr