Two rising trends, absent attention, put the hard earned retirement savings of older people in great jeopardy. The first is the increased instances of dementia, as more people live longer lives. The second is increased cybercrime, as technology makes ever more schemes possible for those lured by the money and data in retirement accounts. Taken together, cognitive decline and cybercrime are an especially bad mix when it comes to the safeguarding of retirement funds.
The Intersection of Dementia and Cybercrime
Employers who sponsor retirement plans have good reason to be concerned about the intersection of dementia and cybercrime. Though the choice to leave assets in the plan can be very beneficial to both the plan and retirees, assets in the plan remain technically under the protection of the sponsor. While sponsors cannot diagnose dementia or stop every cybercrime, they can take preventative action, via diligence with education, plan design, technology and the selection and monitoring of service providers. For example, Michael Kreps, a principal at Groom Law Group, points out that although plan sponsors cannot give investment advice, they can leverage the powers of information and communication:
They can use education to help guide participants toward the right decision, and most of the major recordkeepers offer advisory options that will guide people to a fiduciary. “The key is: You don’t want folks that are no longer capable of making decisions to make key decisions with their life savings,” Kreps says. While managed accounts and advisory programs are not for everybody, Kreps argues that the right solution can play a critical role in helping people prepare for retirement before they start to experience cognitive decline. He says one of the benefits of including something like a guaranteed income solution in plan is that it gives people an “easy button” on the decumulation side and frees them of having to engage heavily with a drawdown strategy. Employees tend to opt into these solutions near the time of retirement, which, for most people, is before cognitive decline starts.
In addition to education that helps retirement plan participants set themselves up for success in the event of a cognitive decline, proactive attention to plan design features can also prove helpful. Josh Cohen, a managing director with PGIM DC Solutions, observes that provisions that enable systematic withdrawal can be very effective in guarding against sudden, unreasoned draw downs from retirement savings, which might be caused by cognition failures and/or cyber scams. Of course it is also a must for retirement plan sponsors to stay up to speed on the ways their chosen service providers are protecting funds. For example, Jason Key, managing director at TIAA, notes that “the firm focuses on training employees to ensure they can detect and deescalate potential fraud.” Key stresses: “From a plan sponsor and participant perspective, the first and one of the most beneficial things a participant can do is simply register for their account and enable dual-[factor] authentication. That goes a long way in protecting them down the road from any sort of fraudulent attempt that may happen to their account.”
Plan sponsors should also be aware that there are regulatory tools financial service providers can leverage for the protection of retirement account funds, and Key offers these examples:
- FINRA Rule 2165…allows brokers/dealers to place a temporary hold on the release of funds or securities from a participant’s account when there is reasonable belief that they are being exploited.
- In addition…FINRA Rule 4512(a) requires brokers/dealers to make a reasonable effort for each of their non-institutional customer accounts to obtain a name and contact information of a trusted contact person
Good To Know: How Prevalent Is Dementia?
Based on data from the National Institute of Health (NIH), Plan Sponsor reports: “The U.S. population is expected to cause the number of new dementia cases per year to double by 2060, and researchers have estimated that 42% of Americans older than age 55 eventually develop dementia. In addition, approximately two-thirds of Americans experience some form of cognitive impairment by age 70….”
Clearly, sponsoring a retirement plan is an important way to put employees on the path to secure retirement. Just keep in mind that there are risks: when you sponsor a retirement plan you are automatically a fiduciary under the high standards of ERISA, and, as the U.S. Department of Labor explains: “Fiduciaries who do not follow the basic standards of conduct may be personally liable to restore any losses to the plan, or to restore any profits made through improper use of the plan’s assets resulting from their actions.” You can never fully eliminate the risk of being held personally accountable to the plan, participants and beneficiaries. Outsourcing plan services does not free you from your risks: as a sponsor, you choose the service providers and remain ultimately accountable for their success on behalf of plan participants and beneficiaries. Specific examples of what you can be held personally accountable for as a fiduciary include:
- Decisions: Do you have the right advisor, and investment options?
- Cost control: Are the plan fees reasonable and services solid?
- Compliance: Do operations adhere to the plan document, and government regulations?
As a fiduciary, you can even be held accountable for failing to adequately mitigate cybersecurity threats to the plan, or to curtail the damage from a breach. You can also be held responsible for failure to monitor your chosen service providers for their adherence to cybersecurity protocols.
If you face claims that you have failed in your responsibilities as a retirement plan sponsor, the only type of protection that shields you personally is Fiduciary Liability Insurance—-with it, you’ll be armed with coverage for defense and penalties. Without Fiduciary Liability Insurance, your personal assets are exposed. As Benefits Pro sums up: “Retirement plan sponsors have enough on their plates dealing with the elements under their control, so they should pursue remedies, like fiduciary liability insurance, that relieves the exceptional burden of things they cannot control.”
Colonial Surety Company offers an efficient and affordable Fiduciary+ Cyber Liability Insurance bundle specifically to protect retirement plan sponsors. For a few dollars a day, you’ll be armed with:
- $1,000,000 for Defense and Penalties if you are faced with alleged or actual breaches of fiduciary duty.
- Cybersecurity Coverage for the business and plan, which addresses Department of Labor recommendations, and includes expert response services to curtail damage after an incident.
To make protection even easier for plan sponsors, Colonial Surety Company even helps you add the Fiduciary+ Cyber Liability Insurance to your ERISA Bond.
Get protected now: Fiduciary+ Cyber Liability Insurance
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