Employee Stock Ownership Plans (ESOPs) give employee owners autonomy and empowerment over their financial futures. Participation could also put them at risk if their sensitive data — financial information, account balances, distributions, etc. — is mishandled.
Responsibly using this information is undoubtedly a priority for an ESOP company. Often, the most practical and effective solution is partnering with an experienced third-party administrator (TPA) to manage the plan.
However, as global cyber attacks increased by a staggering 30% in Q2 of 2024 alone, it’s not enough for TPAs to be hyper-vigilant about protecting participant and company information. They must be proactive in maintaining robust cybersecurity best practices that minimize the threat of exposing financial and personal data.
4 Ways an ESOP TPA Helps Maintain Cybersecurity
The strategy behind a cybersecurity policy encompasses the whole of ESOP plan management. A TPA with big-picture perspective is able to pivot as necessary to address potential data vulnerabilities by championing:
- Risk management. Eliminating all inherent cybersecurity risks isn’t practical or possible. Effective risk management is key for TPAs. Identifying and assessing data threats that could impact proper plan administration or disrupt operations ensures continuity in information safety.
- Secure data encryption and communications. ESOP TPAs should have protocols in place to protect participant data while in use or transit, and when stored. Encryption tools such as firewalls, two-factor identification, and routine data backups deter unauthorized file access. Further, TPAs that use encrypted data channels to exchange information and communications with plan sponsors and administrators provide an additional layer of protection against data interception.
- Cybersecurity education. Having cybersecurity measures in place is critical for TPAs. So, too, is educating ESOP company partners and employee owners on proper use of electronic tools and safe data handling behaviors during ESOP interactions. This multi-pronged approach greatly reduces the threat of inadvertent exposure caused by human error.
- Ongoing regulatory compliance. TPAs are bound by the retirement plan rules of the U.S. Department of Labor (DOL). Growing cyber threats prompted the DOL to issue guidelines for TPAs around formal cybersecurity policies, third-party risk assessments, and regular audits to protect plan sponsors and maintain regulatory compliance.
The Benefits of ESOP TPA Cybersecurity Practices
An ESOP TPA dedicated to cybersecurity adds value in several ways. There are the more obvious benefits such as ESOP company data protection and regulatory compliance, but it’s the intangibles that TPA cybersecurity policies help provide that elevate ESOP companies:
- Employee owner confidence in their ESOP participation, knowing that their account balances, transaction records, compensation histories, and personally identifiable information such as Social Security numbers are secure
- ESOP company operational continuity that ensures day-to-day plan activities such as recordkeeping and distributions are minimally disrupted by fallout from a cybersecurity incident, and that participant information is secure
ESOP Partners Cybersecurity Policy: Strategy Meets Protection
The digital age brings with it a host of cyber threats. The tactics are increasingly sophisticated, and the sought-after data is more vulnerable to attack. An ESOP TPA’s cybersecurity measures need to be equally as sophisticated to thwart data breaches.
ESOP Partners has developed a strategic approach to cybersecurity that we intentionally talk about in broad terms to protect the integrity of the structure, process, and data. Generally, we work conjointly with multiple IT security organizations to leverage their complementary expertise and skill sets in data protection. A series of proactive data management protocols and a comprehensive system of crosschecks overlay our cybersecurity strategy, all of which is consistently monitored and updated to keep ESOP Partners on the leading edge of data security.
Partnering with an ESOP TPA that prioritizes cybersecurity strategies and practices is a strong defense against data encroachment, and an investment in the long-term success of employee ownership.
Finding a trusted ESOP TPA to responsibly manage a plan shouldn’t be an arbitrary choice. Objectively compare potential TPAs and weigh their alignment with your goals, values, and culture using our free Request for Proposal - ESOP Third-Party Administrator template. Download your copy now.
