In this Ideas, the third in a series on managing operational risk in DC plans, we’ll cover:
Data breaches — improper disclosures of individuals’ private information — are, unfortunately, increasingly common.
Protecting defined contribution (DC) plan data is a high priority for plan sponsors — not only because participants expect it, but also because data breaches are expensive to manage and may undermine your participants’ confidence in their plan.
Thankfully, to date, few state and local government DC plans and recordkeepers have experienced data breaches perpetrated by cybercriminals.
Nevertheless DC plan sponsors should be increasingly vigilant, because the personally identifiable information (PII) they safeguard is a tempting target. PII includes Social Security numbers, birthdates, addresses (home and email), compensation information, DC account balances and bank account information.
For DC plans, business process failures are a more likely source of data breaches. Such failures can occur when plan sponsors exchange PII with the DC plan recordkeeper(s) and other DC plan service providers.
Each transmission of data between the DC plan sponsor and recordkeeper(s) or service providers creates risk.
In fact, while just over half of data breaches (52 percent) are the result of malicious or criminal attacks by hackers, the other 48 percent are related to negligence and system failures, according to the Ponemon Institute.
Data breaches associated with negligence may involve information included in misdirected emails, mishandled paper records or on lost devices, such as laptops, smartphones or removable drives.
Breaches related to system failures may result from information technology risk events, such as computer malfunctions.
They may also be attributable to failed business processes, including human errors that result in the accidental distribution of personal data via a mass email, in website postings or printed material.
DC plan sponsors share responsibility for data security with recordkeepers and all stakeholders. For that reason, all parties should play a role in managing cybersecurity risk.
Aspects of a multifaceted strategy for managing cybersecurity risk include:
We cover each aspect in the report.
The risk of inadvertent disclosure of personal information is real — and so are the potential savings associated with your data-protection efforts. According to the Ponemon Institute:
Having an incident response plan and team in place, extensive use of encryption, employee training, BCM [Business Continuity Management] involvement and extensive use of data loss prevention technologies all reduce the cost of data breach by more than $9 per compromised record. [That is a reduction of nearly 9 percent of the average cost of a data breach in the public sector.]
Not only will being prepared reduce the cost of the breach, it will enable you to:
The bottom line is: investing in managing the risks associated with DC plan data security pays off in multiple ways.
For more information about managing operational risk or other risks DC plans face, get in touch.
Rick Reed (Sibson)
VP, Defined Contribution Practice Director
Michael C. Wright (Segal Marco Advisors)
SVP, Senior Consultant
Michael Eck (Sibson)
SVP, Technology Process and Automation Practice Leader
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