Cyberthefts from 401(k) plans are always distressing, but when they occur in smaller plans, the loss can be especially painful.
Take Michael Francis' $100 million plan sponsor client. Earlier this year, a cyberthief posing as one of the plan's participants managed to trick the company and the record keeper into sending him $35,000.
"Incurring a $35,000 unexpected cost would not be within this organization's budget for retirement plan incidentals," said Mr. Francis, president and chief investment officer of Francis Investment Counsel LLC, a registered investment adviser in Brookfield, Wis.
The client, whose name Mr. Francis declined to disclose, was one of several small and midsize plan sponsors that have been recent victims of cybercriminals or targets of attempted attacks, he said.
"We started hearing story after story after story," Mr. Francis said. "We spent most of the first quarter having lengthy conversations with all our clients about the sharp increase in attempted cyberthefts from 401(k) plans," he said.
Cybersecurity threats impact plans of all sizes, but smaller plans face even bigger challenges given their lack of resources. Unlike large employers, small companies can't afford to hire a chief security officer or have staff dedicated to cybersecurity issues. As a result, many small and midsize employers are relying more on their retirement plan advisers for guidance, according to industry observers.
"Small- and medium-size employers don't have anyone to turn to in their organization, so they're more dependent on help from other sources," said Tim Rouse, Simsbury, Conn.-based executive director of the Spark Institute Inc., a retirement industry trade association.
The challenge is especially acute for advisers who work with plan sponsors part time, according to Mr. Francis. Advisers serving the small plan market are more likely not to be 100% focused on defined contribution plans, concentrating instead on wealth management business, he said.
"It's really hard to keep on top of all this stuff because there's so many other things that they're worried about," Mr. Francis said.