Individuals who serve as a fiduciaries to their company’s retirement plan often feel they may not be sufficiently informed or qualified to make prudent decisions for the plan. They might ask themselves: “How do I know which are prudent investments?” or “What amount of plan fees are ‘reasonable’”? Now, the DOL is requiring plan fiduciaries to prudently assess cybersecurity, possibly taking many plan fiduciaries further outside their comfort zones.
We started to see this developing in Episode 1 of our Musings series, when a new member of the Retirement Plan Committee expressed concerns about being qualified to help make decisions about the new DOL cybersecurity guidance. Knowing the Retirement Plan Committee maintains a robust training program, the Committee Chair reassured the New Committee Member that some upcoming training might help…
Retirement Plan Committee Chair: So, what did you think of the training?
New Committee Member: It was long! And, I have to admit, when I saw the agenda showing that our ERISA attorney was going to be presenting for 90 minutes, I immediately went for a second cup of coffee! But I was wrong. The presenter was quite good at putting complex and unfamiliar concepts into easy to understand, bite-sized pieces. She certainly calmed some of the concerns I expressed to you last week, while helping me to see how the problem of cybersecurity has become interwoven with our fiduciary duties.
Committee Member A: I agree 100%. Until today I did not fully understand the scope of our duty as fiduciaries. I thought protecting assets in the plan meant simply make good investments and controlling fees.
Committee Member B: Yes, but did you hear what the attorney said? It is not a matter of “if” but “when” we have a breach. So, why spend all this time if we are just going to have a breach anyway?
Retirement Plan Committee Chair: Maybe, but the message was not that we have to be perfect, but prudent. We have to do our due diligence when making decisions, but we can’t guarantee a result.
Committee Member B: The attorney explained we have to make sure that nobody steals money from participant accounts. This is like playing cops and robbers but now the robbers can be thousands of miles away, stealing by a stroke of their computer. How are we to cope with this?
New Committee Member: That is not exactly what I heard. I heard that we need to be proactive, not reactive. We need to think more critically about the risk to the plan’s data and its assets. We have to consider the kinds of safeguards that are in place at the company and with any vendor that provides services to the plan. We need to learn more about what those safeguards should be, and maybe even bring in some expertise to help us figure that out. We can’t just wing it! And our own IT team may not have this expertise and be on top of the latest types of attacks.
But, she cautioned, even that may not be enough, because no set of safeguards is perfect. It’s like building a moat around the plan’s assets, but also realizing the attackers are sophisticated and can find their way around the drawbridge and the moat. So, we need to be prepared to respond to the inevitable data breach.
I feel better knowing that meeting our fiduciary duty does not require us to be perfect, but we also have some work to do, including to document our process.
Committee Member A: Exactly. You are right. Before the meeting I was totally confused and had visions of cyberattacks from Mars. Counsel explained the situation and provided concrete examples. It was helpful knowing we could develop a road map to follow. I feel better that the situation can be addressed if we take the time and effort to understand it. She laid it out step by step, identifying some common shortfalls and strategies for mitigation.
Retirement Plan Committee Chair: There certainly is a learning curve here, but sounds like we are on our way. Tonight was first step of prudently addressing this new issue and we will build on it. There is a lot to unpack here. For example, it is not just about passwords, firewalls, and encryption, based on the presentation, we also have to consider identity verification.
We all have approved distributions and withdrawals requested by participants. Is our process good enough to tell a real request from a fraudulent one? How much time do each of us actually take to review requests, question the frequency of requests, or consider where they are coming from?
New Committee Member: The attorney said she was going to be at our next meeting, is that right?
Retirement Plan Committee Chair: Yes, that’s right. She may bring in an IT firm in to help us further and to begin shaping a plan to address this issue.
Committee Member B: That is good because I spoke with one of my friends who serves on his retirement plan committee, and the DOL has already started auditing plans on these issues. I volunteered to serve on this committee but am concerned about liability. I want to do more to protect myself and the plan.
The Committee appears to be moving in the right direction. They realize now they cannot be experts in all aspects of plan administration, and that some basic training can go a long way to help them make better, more prudent decisions. But they also realize that need a plan to tackle the process of assessing cybersecurity risks for plan assets and plan data.