If your committee has drifted from its investment policy statement, the fix is to start meeting the requirement immediately, and document that in the minutes.
Read your policy for the word must. Every must, shall, and will is a commitment the committee made, and you should be able to point to the meeting where you kept it.
Reaffirm the policy at least once a year. A document that still describes how your committee actually works is one you can follow. Change it whenever it stops fitting, and read it end to end at least annually so nothing sits unnoticed.
Changing the policy is only the right answer when the committee has concluded the requirement itself no longer serves the plan, and the minutes need to show that reasoning.
Committee Tool
IPS Language Audit
A worksheet your committee fills in during one meeting. You finish with a dated record of every mandatory sentence in your investment policy statement, whether the plan meets it today, and what the committee decided about the ones it does not.
Nothing happens automatically. ERISA sets no penalty tied to an investment policy statement.
The requirement just sits there unmet. It surfaces when someone asks the committee to explain a decision against the standard it set for itself, and that can be years after the meeting where it was decided.
Three things could follow. A participant's lawyer can point to it in a complaint and say the committee did not follow its own rules. Every member of the committee carries the exposure, not just whoever runs the meeting. And the longer the requirement stays unmet, the longer the window to bring suit stays open.
Whether any of that becomes a real problem depends on what your policy actually says, and on whether the minutes show the committee thought about it.
The place to start is your own document. The worksheet above walks the committee through it, one requirement at a time.
Does a Committee Have to Follow Its Investment Policy Statement?
Yes. Your committee adopted the policy to set the standards it holds the plan's investments to, and those are the standards you will be asked to have met. Your advisor or recordkeeper may have drafted the language. Responsibility for following it sits with the committee.
ERISA says a fiduciary has to act “in accordance with the documents and instruments governing the plan.” A committee that set a standard and then missed it will be asked why. It also hands participants' lawyers an extra argument. Claims against 401(k) plans center on fund performance and fees. A missed requirement lets a plaintiff add that you did not follow your own rules.
If ERISA and your policy ever disagree, ERISA wins. Say your policy requires you to hold a fund in every asset class, and the only decent option in one of them turns into a bad deal for your participants. Following the policy would mean keeping a fund you should drop. Drop it, put the reason in the minutes, and fix the policy language at your next meeting so the conflict does not repeat.
What Does It Mean If Your IPS Says “Must” Instead of “May”?
It means you committed to a specific action, and you should be able to show you took it.
Say a fund trails its benchmark four quarters running.
If your policy says the fund will be removed, you committed to removing it. Remove it, or put in the minutes why the committee concluded that removing it would not serve participants.
If your policy says the committee may remove it, you committed to considering it. Show that you looked at the underperformance, weighed the criteria your policy lists, reached a decision and followed it.
Either way the committee has to act and write down what it did. Neither wording lets the quarter pass without a look.
A Third Circuit case shows what a may policy looks like when the committee handles it well. Participants sued a large employer, arguing the committee's own policy required it to drop two funds. The committee won. Not because the policy said may, but because the record showed the committee used the room that word gave it.
That committee:
Met quarterly
Hired two investment advisors and questioned the advice rather than adopting it
Met with the managers of both funds being challenged
Put one fund on a watch list and came back to it later
Permissive wording without that record would not have helped them.
If you have not been meeting a requirement your policy sets, you have three options:
Start doing it. The requirement still makes sense, so meet it going forward.
Keep doing what you are doing, and put in the minutes why that is the better call for participants.
Change the policy at your next meeting, if the requirement no longer fits the plan
Leaving the requirement in place and quietly ignoring it is not one of them.
When Should a Committee Update Its Investment Policy Statement?
As soon as the committee decides the policy no longer describes a prudent process. That can be any meeting. The annual review is the backstop, not the only window.
Read the whole document at least once a year and confirm these still fit:
The investment objectives
The asset classes on the menu
The default investment
The benchmarks and watch list rules
The fee standards
Who decides what
Anything that no longer matches how the committee works gets fixed on the record.
Don't delete a requirement just because you haven't been meeting it. Ask whether you should have been and if the answer is yes, start following it. If the requirement genuinely no longer fits the plan, change it and put the reason in the minutes.
When a change is warranted:
Check how your policy says it gets amended. Your policy may include an amendment provision, often a majority vote of the committee. Follow whatever yours says. If it is silent, a recorded committee vote is the default.
Make the change at a meeting and put it in the minutes. Approving the change in a recorded vote is what makes it the committee's decision rather than someone's understanding of it.
Changing the policy does not clean up the past. Changing the policy fixes things from that point on. It does not undo the period when the plan was out of line with the old wording. It doesn't erase the stretch where the plan was out of line with the old wording. In one older case, trustees kept raising an equity ceiling at meetings where the account was already over the old limit, and they were held liable for those months.
Note in the minutes what the practice was before the change and why.
What Should a Committee Do After It Misses an IPS Requirement?
Address it immediately or at the next scheduled meeting and record the outcome.
Record the deviation. Identify the provision, the period it went unmet, and what the committee knew at the time.
Meet the requirement, or amend the policy. If the requirement still fits the plan, resume it. If it does not, amend the policy by recorded vote. Leaving the provision in place while operating outside it is not an option.
Record the reasoning. A decision to retain a fund the policy flagged is a legitimate outcome. It needs the same written record as a decision to remove one: the criteria reviewed, the alternatives considered, and why the committee concluded as it did.
Two reasons not to ignore any deviation:
Every committee member is exposed, not just the chair. ERISA makes a fiduciary liable for another fiduciary's breach if they know about it and do not make reasonable efforts to remedy it. A member who knows the policy is being ignored and stays quiet has the same exposure as the person running the meeting.
Waiting keeps you exposed longer. Leaving it open extends how long you can be sued. ERISA cuts off a claim at the earlier of two dates: six years from the last date the problem could still have been fixed, or three years from when a participant actually learned of it.
Pull two documents: your current investment policy statement, and your committee minutes for the past year.
Read the policy start to finish.
Mark every sentence containing shall, must, or will.
For each one, go back through the minutes and find where the committee actually did it. If you can't find it, that is a line to take up at your next meeting.
Step two takes an hour. Step three is where committees find requirements nobody has acted on in years.
Our IPS Language Audit does this in one sitting. Your committee lists every mandatory sentence in the policy, marks whether the plan meets it, and records what happens next for the ones it does not.
Committee Tool
IPS Language Audit
A worksheet your committee fills in during one meeting. You finish with a dated record of every mandatory sentence in your investment policy statement, whether the plan meets it today, and what the committee decided about the ones it does not.
Want a second set of eyes on your policy? Schedule a call here or give us a all: (206) 625-1800
Plan Sponsor FAQs
No, but every committee should have one. ERISA requires a careful process for choosing and monitoring plan investments, and a written policy is the usual way a committee shows it has one and keeps it consistent as membership changes.
Both can be, for different reasons. The committee's obligation runs through ERISA's requirement that fiduciaries follow the documents governing the plan. An investment manager's obligation runs through its contract, so if you want a manager held to your policy, it has to say so in the investment management agreement.
No. Getting rid of the policy also gets rid of the written record of the standards the committee set for the plan's investments, and that record is what you rely on to show a careful process. If the policy says something the committee should not be doing, take that up at your next meeting and change it on the record.
29 U.S.C. 1105, Liability for breach of co-fiduciary. law.cornell.edu/uscode/text/29/1105
29 U.S.C. 1113, Limitation of actions. law.cornell.edu/uscode/text/29/1113In re Quest Diagnostics ERISA Litigation, No. 24-2866 (3d Cir. June 22, 2026). www2.ca3.uscourts.gov/opinarch/242866p.pdf
Dardaganis v. Grace Capital Inc., 889 F.2d 1237 (2d Cir. 1989)
Important Disclosures
First Hill Trust Company is a Washington State-chartered trust company. Investment advisory services are provided by BAC Capital Advisors, an SEC-registered investment adviser and a wholly owned subsidiary of First Hill Trust Company. Registration does not imply a certain level of skill or training. This article is educational. Neither First Hill Trust Company nor BAC Capital Advisors is acting as ERISA counsel or tax counsel to any plan or plan sponsor, and nothing here replaces advice from qualified counsel about your own plan.
Accuracy and currency. Statutory provisions and regulatory descriptions in this article were checked against the cited primary sources as of the date of publication, but First Hill Trust Company and BAC Capital Advisors make no representation or warranty as to the accuracy, completeness, or timeliness of the information, and accept no liability for actions taken in reliance on it. Regulations and guidance change. Confirm current requirements with qualified counsel.
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No offer, agreement, or commitment. Nothing in this material constitutes an offer, solicitation, agreement, or commitment to provide any particular service or to assume any particular responsibility. Descriptions of what a trustee, administrator, adviser, committee, employer, or other party “may” or “can” do are illustrative of how such arrangements commonly work and do not describe the terms of any specific engagement. The actual services provided, the allocation of responsibilities, the scope of any delegation, and the duties of any party are governed solely by the applicable plan documents, trust agreement, advisory agreement, and written service agreements. In the event of any inconsistency, those documents control.
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