Protecting Employee Retirement Savings From Cyber Criminals - Employment and HR

June 26, 2021

United States:

Protecting Employee Retirement Savings From Cyber Criminals

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Companies that sponsor 401(k) plans have a fiduciary obligation
to protect the individual retirement accounts of their employees
from cyber theft. Currently, there are approximately 106 million
defined contribution plans in the United States, which hold almost
$6.3 trillion in employee retirement savings.  For many
employees, their individual 401(k) account represents their largest
asset and their sole retirement savings vehicle. 
Unfortunately, over the last couple of years, cyber theft has
become an increasing risk for companies that sponsor 401(k)
plans.  In one case, a former employee had $245,000 withdrawn
from her individual 401(k) account by cyber criminals.  In
another case, a law firm partner had $400,000 withdrawn from his
individual 401(k) account by cyber criminals.

Recognizing cyber criminals pose a real threat to retirement
plans, the U.S Department of Labor ("DOL") recently
issued cyber security best practice guidance for companies that
sponsor 401(k) plans, plan fiduciaries, record-keepers, and
employees who participate in 401(k) plans.  This is the first
time the DOL has issued cybersecurity guidance.  The DOL's
guidance comes in three forms: (1) Tips for Hiring a
Service Provider
,  which is intended to help
companies that sponsor a 401(k) plan in selecting a service
provider with strong cybersecurity practices and procedures;
(2) Cybersecurity Program Best Practices,
which provide twelve broad categories of best practice guidelines
to help mitigate cyber security risks, and (3) Online
Security Tips
, which are intended to assist individual
employees in reducing the risks of fraud and loss to the their
individual 401(k) retirement savings account.

In accordance with ERISA section 404, a plan fiduciary must
discharge his/her duties with respect to the 401(k) plan solely in
the interest of employees and plan beneficiaries and for the
exclusive purpose of providing them retirement benefits.  As a
result, a partial or total loss of an employee's 401(k) account
balance due to cyber theft may be considered a breach of fiduciary
duty, which exposes the fiduciary to personal liability and the
requirement to make the plan whole.  In the examples noted
above, the thefts of the employee's retirement savings have
resulted in litigation against the employee's company and other
entities who were involved in plan administration.  To avoid
the loss of employee account balances due to cyber theft, companies
must review and implement the DOL guidance to reduce the risk of
cyber theft.  Because cyber criminals are becoming
increasingly more sophisticated, cybersecurity will be an ongoing
responsibility and obligation and not a one-time review for
companies that sponsor 401(k) plans.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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