“Can you bring me up to speed on what cybersecurity standards apply to qualified retirement plans?”
ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business.
A recent call with an advisor in Massachusetts is representative of a common question on what the Department of Labor (DOL) has to say about cybersecurity and retirement plans.
Highlights of the Discussion
Cybersecurity has been a growing topic of importance in the retirement services industry for years. The Bartnett v Abbott Labs et al court case in 2020 (although later dismissed), along with other cases, have heightened the concern for fiduciary liability related to such breeches. From a historical perspective, there is an understanding under DOL Regulation Section 2520.104b-1(c)(i)(B) and other pronouncements related to the electronic delivery of plan information that a plan sponsor must ensure the electronic system it uses keeps participants’ personal information relating to their accounts and benefits confidential.
Most recently, the DOL on April 14, 2021, issued three cybersecurity directives for retirement plans: one for plan sponsors, one for plan recordkeepers and one for plan participants:
- Tips for Hiring a Service Provider: This piece helps plan sponsors and fiduciaries prudently select a service provider with strong cybersecurity practices and monitor their activities, as required by ERISA
- Cybersecurity Program Best Practices: This piece assists plan fiduciaries and record-keepers in their responsibilities to manage cybersecurity risks by following these steps.
- Have a formal, well documented cybersecurity program.
- Conduct prudent annual risk assessments.
- Have a reliable annual third-party audit of security controls.
- Clearly define and assign information security roles and responsibilities.
- Have strong access control procedures.
- Ensure that any assets or data stored in a cloud or managed by a third-party service provider are subject to appropriate security reviews and independent security assessments.
- Conduct periodic cybersecurity awareness training.
- Implement and manage a secure system development life cycle (SDLC) program.
- Have an effective business resiliency program addressing business continuity, disaster recovery, and incident response.
- Encrypt sensitive data, stored and in transit.
- Implement strong technical controls in accordance with best security practices.
- Appropriately respond to any past cybersecurity incidents.
- Online Security Tips: This piece offers plan participants and beneficiaries who check their accounts online basic rules to reduce the risk of fraud or loss.
This trifecta of DOL guidance comes on the heels of two recommendations to the DOL from a February 2021 Government Accountability Office (GAO) report to: 1) formally state whether it is a fiduciary’s responsibility to mitigate cybersecurity risks in defined contribution plans and to 2) establish minimum expectations for addressing cybersecurity risks in defined contribution plans. But despite the release of these three directives, presently, there is no comprehensive federal regulatory regime covering cybersecurity for retirement plans.
Other Sources of Guidance to Consider
The American Institute of CPAs (AICIPA) has developed and maintains a cybersecurity risk management program for use by plan auditors, which includes a Systems and Organizations Controls (SOC) protocol intended to help plan sponsors in creating a strong cybersecurity framework . This Q&A, “Cybersecurity and employee benefit plans: Questions and answers,” provides an overview of the resources.
The ERISA Advisory Council issued a report in 2016 entitled, “Cybersecurity Considerations for Benefit Plans.” The ERISA Advisory Council suggested the DOL raise awareness about cybersecurity risks and provide information for developing a cybersecurity strategy specifically focused on benefit plans. “The Report” put forth considerations for the industry for navigating cybersecurity risks. The considerations relate to the following three key areas. Please refer to the report for more details.
- Establish a strategy
- Identify the data (e.g., how it is accessed, shared, stored, controlled, transmitted, secured and maintained).
- Consider following existing security frameworks available through organizations such as the Nation Institute of Standards and Technology (NIST), Health Information Trust Alliance (HITRUST), the SAFETY Act, and industry-based initiatives.
- Establish process considerations (e.g., protocols and policies covering testing, updating, reporting, training, data retention, third party risks, etc.).
- Customize a strategy taking into account resources, integration, cost, cyber insurance, etc.
- Strike the right balance based on size, complexity and overall risk exposure.
- Consider applicable state and federal laws.
- Contracts with service providers
- Define security obligations.
- Identify reporting and monitoring responsibilities.
- Conduct periodic risk assessments.
- Establish due diligence standards for vetting and tiering providers based on the sensitivity of data being shared.
- Consider whether the service provider has a cyber security program, how data is encrypted, liability for breaches, etc.
- Understand overall insurance programs covering plans and service providers.
- Evaluate whether cyber insurance has a role in a cyber risk management strategy.
- Consider the need for first party coverage.
The Report concludes with an appendix entitled, Employee Benefit Plans: Considerations for Managing Cybersecurity Risks (A Resource for Plan Sponsors and Service Providers).
State laws are another consideration. Each state has different laws governing cybersecurity concerns that may come into play. Unfortunately, many retirement plans cover multiple states or retirees who have moved out of state.
As fiduciaries of their retirement plans, the DOL requires plan sponsors to ensure the electronic systems they authorize for use in the administration of their plans keeps participants’ personal information relating to their accounts and benefits confidential. While currently no comprehensive cybersecurity protocol for retirement plan administration exists at the federal level—we do have a series of guidelines, suggestions and best practices.