[BreachExchange] Cybersecurity Risks to Employee Benefit Plans - Are You Prepared?

[Audrey McNeil]

https://www.natlawreview.com/article/cybersecurity-risks-
to-employee-benefit-plans-are-you-prepared

Unless you’ve been living on a remote mountaintop or inside a cave for the
past 10 years, chances are good you’ve either been affected by a
cybersecurity breach or know someone who has. Among many other businesses,
recent cybersecurity breaches have affected large retailers and bankers,
internet providers, and even the U.S. government.  The 2017 breach of
Equifax (one of the largest credit bureaus in the U.S.) left the names,
Social Security Numbers, birthdates and addresses of more than 140 million
Americans exposed to hackers.

Cybersecurity Threats to Employee Benefit Plans and Service Providers. In
light of the high cost of a cybersecurity breach – including not only
financial costs, but also potential damage to a business’ reputation – most
companies have strengthened their overall cybersecurity protocols.  They
may not,  however, have fully considered the threat hackers pose to
participant data collected for their employee benefit plans.

Hackers have recently targeted benefit plans and plan service providers
(such as third-party administrators, record keepers, trustees, etc.),
viewing them as valuable targets due to the participant data they must
maintain. Plans and service providers have fallen victim to schemes to
steal participant data, fraudulent transfers of participant assets (through
direct transfers and fraudulent plan loans), and ransomware attacks.  Even
though only a relatively small number of such attacks have occurred (so
far), they have resulted in millions of dollars in losses.

Duty to Protect Participant Data. The Employee Retirement Income Security
Act of 1974, as amended (ERISA), doesn’t currently require plan sponsors to
safeguard participants’ personally identifiable information (though that
may one day change).  Even without a specific statutory or regulatory
requirement to protect such data, however, ERISA Section 404 still requires
benefit plan sponsors and other fiduciaries to administer their plans for
the exclusive benefit of plan participants and beneficiaries, and with the
“care, skill, prudence, and diligence under the circumstances that a
prudent man acting in a like capacity and familiar with such matters would
use.”  That likely includes protecting participants’ personal information.

ERISA Advisory Council Recommendations. The ERISA Advisory Council (the
Advisory Council), a committee that advises the Department of Labor on
ERISA matters, has been concerned about cybersecurity risks to employee
benefit plans for several years.  In its 2016 report discussing those
risks, the Advisory Council advised plan sponsors to adopt procedures for:
(i) understanding what data might be subject to cyberattacks; (ii)
responding to cyberattacks; and (iii) recovering from cyberattacks. The
Advisory Council stressed the need for plan sponsors to thoroughly vet
their service providers and to negotiate contract provisions to lower or
mitigate the costs of correcting a possible cyberattack on a plan.
Finally, the Advisory Council encouraged plan sponsors to review and
understand the limitations of their business insurance coverage, and
consider cyber insurance to address possible coverage gaps.

As part of their ERISA duty to monitor plan service providers, plan
sponsors must understand how their service providers store and protect the
participant data they handle. Plan sponsors should also understand the
providers’ procedures for breach notification, including any obligations
they may have to notify participants or governmental authorities.  Plan
sponsors can glean this information from reviewing the agreements with
their benefit plan providers and from discussions with those providers.

If (or more likely, when) a cybersecurity breach occurs, plan sponsors
should have a plan in place for addressing the breach. It should include
procedures for how the sponsor, likely working with its service providers,
will communicate with plan participants  who may be anxious about the
breach and protecting their data.  Sponsors should also have a process for
determining how a breach will be corrected and what remedies will be used.
Sponsors should document both their overall process for responding to
cybersecurity breaches and any steps they take in correcting an actual
breach.  This will help show that they acted prudently in the face of the
breach.

When implementing a cybersecurity risk management strategy, plan sponsors
should remember that one size does not fit all.  The sponsor’s approach
will depend on its own circumstances, balancing the need to protect plan
participant data and the sponsor’s own business needs.  For instance,
rather than adopting a completely new cybersecurity policy for its benefit
plans, a sponsor might “piggyback” that policy onto the sponsor’s general
cybersecurity policies.

Given the growing cybersecurity risks to employee benefit plan participant
data, plan sponsors should have procedures and policies in place to protect
that data, and should be prepared to quickly respond to and resolve any
breaches that may occur.
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