One question often asked of plan fiduciaries by advisors attempting to learn what’s on their minds is: What keeps you up at night when you think about your retirement plan? Interviews and industry conference sessions are built around that question. It probes deeply beyond time-consuming tasks or operational annoyances, and the response provides insight into the thought processes of the plan fiduciary.
Former U.S. Secretary of Defense Donald Rumsfeld once educated a nation by addressing known knowns and known unknowns: “…because, we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say, we know there are some things we do not know.”
Known responses to the question, “What keeps plan sponsors up at night?” frequently center around fees, deferral deposits or investment monitoring. All those topics are important; however, they rarely rise to the level of critical risk. Today’s retirement plan advisors should be aware the risk presented by the following knowns and the critical risk around the corresponding unknowns—all beginning with the letter “C.”
Protection for retirement plan data, participant assets and security breaches should be integrated as organizational risk management or information security. Every plan fiduciary will be held accountable in the instance of plan losses. According to the latest Cost of a Data Breach Report by IBM and the Ponemon Institute, the cost of an average data breach in 2021 was $4.24 million.
Threats associated with cybersecurity exposure are costly and can be catastrophic. Cybersecurity needs to be discussed at the retirement committee level, while prevention and protection clearly needs to be addressed at an enterprise level.
Read more commentary from Steff Chalk here.
Retirement plan assets are subject to a fresh set of risks in the rise of cryptocurrency. Cryptocurrency assets have mass, momentum and the attention of both the SEC and the DOL.
Speaking at the Aug. 3, 2021 Aspen Security Forum, SEC Chairman Gensler noted that “the cryptocurrency asset class is worth approximately $1.6 trillion.” And Ali Khawar, the Acting Assistant Secretary for the DOL’s Employee Benefits Security Administration, commented last year that the DOL finds the prospect of cryptocurrency investments in 401(k) plan lineups “troubling.” This should raise two questions in the minds of every plan fiduciary:
- Is crypto currency an acceptable asset class position within qualified retirement plans?
- If the crypto asset class experiences exponential sustainable growth, are plan participants and plan fiduciaries at risk if a crypto currency asset class is not available within the retirement plan?
Many believe that cryptocurrency will impact global financial markets and transform the way the financial services system functions. If digital assets are the wave of the future, can plan participants survive without exposure to the asset class?
Court Case Casualty
Plan participants can always file suit against plan fiduciaries or plan providers—that is a known. The unknown in all fiduciary cases is the outcome. Unknown risk, which can be catastrophic to a plan sponsor, manifests as fines, settlements, restitution, penalties or some combination of the three.
Working with a retirement plan advisor specialist is no guarantee of eliminating such risk; however, employing a retirement plan advisor specialist is an incredible value for a plan sponsor hoping to mitigate such risk. A good retirement plan advisor is aware of both the latest fiduciary breach court cases and the importance keeping retirement plan fiduciaries apprised of fiduciary risk.
Today’s retirement plan advisors can enhance their value and worth by addressing with plan fiduciaries topics that may be critical or fatal to ignore.
Steff Chalk is the Executive Director of The Retirement Advisor University (TRAU), The Plan Sponsor University (TPSU) and 401kTV. This column first appeared in the Spring issue of NAPA Net the Magazine.