Certified Plan Sponsor Professional (CPSP) Practice Exam

Which core elements should a plan's investment policy statement include?

1. Investment market analysis

2. Procedures for controlling investment expenses

3. Historical performance of investments

4. Minimum investment amounts

The correct answer is: Procedures for controlling investment expenses

The core elements of a plan's investment policy statement (IPS) are crucial for guiding the management of the investment portfolio in a clear and structured manner. Including procedures for controlling investment expenses is essential, as it helps ensure that the costs associated with managing the investments are kept in line with the overall objectives of the plan. Controlling these expenses directly affects the net returns of the investments, which is vital for the long-term success of the retirement plan or investment strategy. An effective IPS provides a framework for evaluating and managing investment costs, which can include management fees, transaction costs, and other related expenses. By setting out clear procedures, the IPS not only aims to minimize costs but also to enhance accountability and transparency in how investment decisions are made and reviewed. While other options may provide valuable information or context within an investment strategy, they do not hold the same foundational significance as establishing clear procedures for controlling expenses. For instance, investment market analysis and historical performance of investments can inform decisions but do not directly contribute to the responsible management of costs, while minimum investment amounts are typically more about thresholds for participation rather than an overarching policy framework for investment management.