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Since employers are in the business of running the company, they normally hire out the administration of 401(k) plans or for a larger firm, have an in house human res team member run the program. The 401(k) must adhere to federal guidelines and be run with a fiduciary concern for the employees' hard earned money. That's where the 401(k) investment policy statement (IPS) comes in. Similar to a standard investment policy statement between a financial advisor and the client, this statement governs the relationship between the fund administrator and the employee participants. (For more, see: The Basics of a 401(k) Retirement Plan.)

The formal 401(k) investment policy statement should be shared with employees who participate in the plan and include the overall financial goals and investment options for plan participants. A 401(k) benchmarking survey conducted by Deloitte Consulting found that only approximately 83% of plans surveyed had a 401(k) investment policy statement. (For more, see: 5 Signs That You Have a Lousy 401(k) Plan.)

Here's what should be covered in this important document with examples following each major topic. (For more, see: Analyzing The Best Retirement Plans and Investment Options.)

Investment philosophy and investment objectives

The 401(k) plan is designed to further employees' company loyalty and offer a suitable strategy to save and invest for retirement. It should:

Detail asset allocation options and appropriate fund choices within each asset class. (For more, see: 5 Things to Know About Asset Allocation.)

Educate employees about basic investment principals to further wise choices.

Who administers the plan?

The plan will be administered through the retirement planning department at major investment brokerage firm in accordance with all local and federal laws.

Plan objectives

Promptly pay all benefits and expenses.

Keep costs, fees and expenses to a reasonable minimum.

Offer advice only by the designated fiduciary financial advisor.

Use due diligence in all matters related to the program, including investment options and plan advisors.

Regularly monitor activities of 401(k) plan according to appropriate pre-determined rules.

Allow plan participants seamless access to their accounts, and the ability to make changes in accordance with plan guidelines.

Include reasonable investment choices including a cash alternative, index mutual funds, and access to both U.S. and international markets.

Follow Employee Retirement Income Security Act of 1974 (ERISA) fiduciary advisor safe harbor rules. (For more, see: What the DoL's Fiduciary Policy Means for Advisors.)

Monitor and adapt investment options when necessary

Ensure clear guidelines for purchase of company stock.

Appoint non-biased, professional overseers of the program for annual audit. Include review of available investment options.

Set and follow performance benchmarks to guide plan investment options. (For more, see: A Portfolio for Savers Nearing Retirement.)

A company's 401(k) plan is an important employee benefit. Creating, maintaining and adhering to its guidelines furthers a satisfied workforce and the likelihood workers will participate in the plan. Finally, the proper 401(k) investment policy statement can lead employees to save and invest toward retirement. (For more, see: 4 Unique Employee Benefits You've Never Heard Of.)