Certified Plan Sponsor Professional (CPSP) Practice Exam

An investment policy statement should outline which of the following?

1. Process and criteria for selection, monitoring, and replacing plan investments.

2. The names of all investment advisors involved with the plan.

3. Only the projected returns of the chosen investments.

4. Current market trends and economic forecasts.

The correct answer is: Process and criteria for selection, monitoring, and replacing plan investments.

An investment policy statement (IPS) serves as a crucial document that provides a framework for managing investments within a retirement plan. It is designed to outline the specific processes and criteria used for selecting, monitoring, and replacing plan investments. This ensures a systematic approach to investing that aligns with the investment goals, risk tolerance, and overall objectives of the plan. By detailing the selection process, the IPS helps to clarify how investment decisions are made, including the criteria for evaluating potential investments, the benchmarks for performance measurement, and the procedures for ongoing monitoring. This structured approach not only helps in maintaining consistency in investment decisions but also aids in protecting the fiduciary duties of plan sponsors by demonstrating prudent oversight. Other options, while they may contain elements that are relevant to investment management, do not encapsulate the essential purpose of an IPS. The focus of the IPS should be on the strategies, guidelines, and frameworks rather than on specific advisors, projected returns, or market conditions, which are more dynamic and less fundamental to the core structure of an IPS.