The Investment Policy Statement (IPS), in the context of the Employee Retirement Income Security Act (ERISA), is a document that outlines the investment objectives, risk tolerance, and investment strategies for a retirement plan. It guides plan fiduciaries and investment managers in making investment decisions and monitoring the plan's performance.
Which of the following is NOT a component of an investment policy statement (IPS)?
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A) Investment objectives are a key component of an IPS. B) Risk tolerance is a key component of an IPS. C) Asset allocation strategy is a critical component of an IPS. D) The investment adviser's fee schedule is not a component of an IPS, as it is typically part of the investment advisory contract.
What is the primary purpose of an investment policy statement (IPS) in the context of ERISA?
A) The investment adviser's qualifications are not the primary purpose of an IPS. B) The primary purpose of an IPS is to serve as a guide for plan fiduciaries and investment managers. C) A summary of the plan's investment performance is not the primary purpose of an IPS. D) Establishing the plan's fee structure is not the primary purpose of an IPS.
In the 1970s, a series of high-profile pension plan failures led to the creation of ERISA. The law was designed to protect the retirement assets of millions of Americans by establishing strict standards for plan fiduciaries and requiring the creation of an IPS to guide investment decisions.
Which federal law requires the creation of an investment policy statement (IPS) for retirement plans in private industry?
A) The Investment Company Act of 1940 regulates investment companies, not retirement plans. B) The Investment Advisers Act of 1940 regulates investment advisers, not retirement plans. C) The Securities Act of 1933 regulates the issuance of securities, not retirement plans. D) ERISA is the federal law that requires the creation of an IPS for retirement plans in private industry.
A small business owner establishes a 401(k) plan for her employees. She hires an investment manager to oversee the plan's assets and creates an IPS that outlines the plan's investment objectives, risk tolerance, and asset allocation strategy. The IPS serves as a roadmap for the investment manager, helping to ensure that the plan's assets are managed in the employees' best interests.
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Example Series 65 Example Practice Question
An IPS for ERISA, a guide that won't dismiss ya, For fiduciaries and managers, a roadmap to assist ya, With objectives, risk, and strategies, a plan that won't resist ya, Protecting retirement assets, a document to persist ya.