Certified Plan Sponsor Professional (CPSP) Practice Exam

An investment policy statement should primarily outline which of the following?

1. Marketing strategies for investments

2. Process and criteria for selecting, monitoring, and replacing investments

3. The historical performance of each fund

4. The total number of participants in the plan

The correct answer is: Process and criteria for selecting, monitoring, and replacing investments

An investment policy statement (IPS) serves as a guiding framework for making investment decisions within a retirement plan or investment portfolio. It primarily details the process and criteria for selecting, monitoring, and replacing investments. This is essential because it establishes clear guidelines that help in managing the investment strategy over time and provides a consistent approach to handling portfolio decisions. Including the selection process ensures that investments align with the overall objectives and goals of the plan, taking into consideration factors such as risk tolerance, time horizon, and investment objectives. Furthermore, detailing monitoring criteria allows for ongoing evaluation of the investment’s performance, ensuring that it continues to meet the established benchmarks. A policy for replacing investments is also crucial, as it outlines when and how to divest from underperforming assets or to adjust the investment strategy in response to changing market conditions. The focus on these processes helps in maintaining discipline in investment decisions, which contributes to the long-term success of the investment strategy within the plan. In contrast, marketing strategies, historical performance data, and participant numbers do not directly guide investment management or decision-making as comprehensively as a well-outlined process for selection, monitoring, and replacement does.