On April 14, 2021, the Department of Labor (DOL) issued its first set of guidance documents related to the cybersecurity of retirement benefit plans covered by the Employee Retirement Income Security Act (ERISA). The three-part guidance is aimed at various stakeholders—plan fiduciaries, service providers, plan participants and beneficiaries—and provides cybersecurity expectations for plan fiduciaries and best practices for their service providers.
Cybersecurity has become an area of critical importance to plan sponsors and administrators of employee benefit plans, as well as their service providers, as they increasingly rely on the Internet and IT systems to administer those plans. In a February 2021 Government Accountability Office (GAO) Report, the GAO, an independent and non-partisan U.S. legislative agency that monitors and audits government spending and operations, highlighted the significant cybersecurity risks to benefit plans and called on the DOL to clarify responsibilities for fiduciaries and provide guidance related to minimum cybersecurity expectations. Although DOL’s recent guidance is “sub-regulatory guidance,” which does not have the authority of federal agency regulations under the Administrative Procedure Act (APA), the guidance presents DOL’s first official action focused on mitigating the significant cybersecurity risks to participant data and plan assets.
DOL’s three pieces of cybersecurity guidance target different audiences and emphasize the importance of each stakeholder’s role in preventing fraud and loss. The following is a brief summary of each guidance document.
- Tips for Hiring a Service Provider: In its first piece of guidance, DOL emphasizes that retirement plan sponsors should prudently select service providers that demonstrate strong cybersecurity practices. The guidance provides the following “tips” to prudently select and monitor service providers:
- Ask about the service provider’s information security standards, practices and policies and audit results, and compare them to the industry standards adopted by other financial institutions. DOL suggests that plan sponsors look for service providers that follow a recognized standard for information security and use an independent auditor to review and validate cybersecurity.
- Ask the service provider how it validates its practices, and what levels of security standards it has met and implemented. Plan sponsors should seek contractual provisions that provide the right to review audit results demonstrating compliance with the security standards.
- Evaluate the service provider’s track record in the industry, including public information regarding information security incidents, other litigation and legal proceedings related to vendor’s services.
- Ask whether the service provider has experienced past security breaches, what happened and how the service provider responded.
- Find out if the service provider has any insurance policies that would cover losses caused by cybersecurity and identity theft breaches (including breaches caused by internal threats, such as misconduct by the service provider’s own employees or contractors, and breaches caused by external threats, such as a third party hijacking a plan participant’s account).
- When contracting with a service provider, DOL advocates that plan sponsors make sure that the contract requires ongoing compliance with cybersecurity and information security standards and does not contain provisions that limit the service provider’s responsibility for data breaches. Additionally, the contract should annually require the service provider to obtain a third-party audit to determine compliance with information security policies and procedures.
- Cybersecurity Program Best Practices: In the second piece of guidance, DOL provides a list of best practices for record-keepers and other plan service providers responsible for plan-related IT systems and data. Although the guidance provides “tips” for plan service providers to develop a cybersecurity governance program, the guidance is also relevant for plan sponsors and administrators that maintain IT systems and plan data in-house. This guidance is notable because DOL states “plan fiduciaries have an obligation to ensure the proper mitigation of cyber security risks” and suggests that plan fiduciaries’ duty of prudence entails the evaluation of whether a service provider is properly situated to mitigate cybersecurity risks. The following summarizes DOL’s 12 recommended best practices:
- Have a formal, well-documented cybersecurity program that identifies and assesses internal and external cybersecurity risks that may threaten the confidentiality, integrity, or availability of stored nonpublic information.
- 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.
- Participant Security Tips: In its third piece of guidance, DOL offers plan participants and beneficiaries ways to reduce the risk of fraud and loss related to accessing retirement accounts online. The guidance provides the following “tips” to prevent a participant’s risk of loss to their retirement account:
- Routinely monitor online retirement accounts.
- Use strong and unique passwords and multi-factor authentication (MFA).
- Keep personal contact information current and close or delete unused accounts.
- Beware of unsecured Wi-Fi and phishing attacks.
DOL’s guidance makes clear the protection of participant data and plan assets from cybercriminals is a critical consideration for all benefit plan stakeholders. ERISA establishes minimum standards and requirements intended to protect plan participants and beneficiaries in private sector benefit plans and requires plan fiduciaries to act prudently when administering plans. But ERISA regulations are silent on how plan constituents should comply with these requirements. Prior to issuing its guidance, DOL had not clarified its view as to whether plan administrators were responsible for mitigating cybersecurity risks. The recent literature makes clear that in DOL’s view, retirement plan fiduciaries are obligated to ensure the proper mitigation of cybersecurity risks, and the guidance provides helpful data points for plan record-keepers and service providers to protect plan data.
In light of DOL’s guidance, plan sponsors and administrators that handle data management in-house that have yet to develop a formal cybersecurity program should do so now, and those with cybersecurity programs currently in effect should re-evaluate those programs to ensure they align with DOL’s suggested best practices. Plan sponsors and administrators should also revisit their contractual engagements with service providers to ensure they have adopted a well-documented cybersecurity program that offers adequate protections in the event of a breach. Although the guidance is framed as “tips” and “best practices” and currently has no enforcement mechanism, it signals the DOL’s heightened focus on cybersecurity in light of more frequent attacks and increasingly sophisticated breach techniques. The guidance specifically addresses retirement plans, but fiduciaries of health and welfare plans are subject to the same fiduciary responsibilities under ERISA. Stakeholders should evaluate their cybersecurity practices and policies and implement the DOL’s best practices where possible to ensure their benefit plans do not fall victim to data compromise.