The Year 2000 problem: a public plan perspective.

• Author: Griffin, Sarah H.

This article was originally released as an internal document at the Metropolitan Corporate Counsel in June 1998. It is reprinted and adapted with permission.

It is not too soon for fiduciaries of public plans to assess and to take action to correct the looming Year 2000 (Y2K) software problem. Given the widespread reliance on information technology in the area of public plan administration and investments, problems caused by the coming millennium could be disastrous.

Public plans should understand that the Y2K problem (also referred to as the millennium bug) is not just an information systems problem but is a core operational issue that could potentially affect every aspect of the plan. Public plan fiduciaries who do not timely address the plan's Y2K problems, do not obtain adequate assurances of Y2K compliance from the plans various service providers, or do not exercise procedural prudence in identifying investments that have addressed their own Y2K problems are likely to be faced with breach of fiduciary duty claims brought by members, plan sponsors, and participating employees who allege damages by the fiduciaries lack of attention. This article outlines some of the particular issues encountered by public plans in confronting Y2K problems, points out some of the "hidden" problems, and describes some steps that public plan fiduciaries can take to prepare for the Year 2000.

The Year 2000 Problem - What Is It?

The Y2K problem stems from the inability of some computers to distinguish properly between 1900 and 2000, or between 1962 and 2062, due to programming that processes the year date on a two-digit basis rather than a four-digit basis. This programming glitch means that upon the turn of the century, computer hardware and software that is not Y2K compliant will not function properly, if at all.

As has been repeatedly pointed out by the media and experts in the area, the Y2K problem cannot be fixed inexpensively or quickly. It has estimated that the correction costs for the Y2K problem may run as high as $600 billion worldwide. An estimated 90 percent of all computerized applications in existence will not operate correctly in the Year 2000 and beyond unless the problem is addressed. Substantial resources, both financial and human, must be invested in inventorying and testing all potentially affected hardware, software, devices, and equipment. If not addressed, the Y2K problem could cause serious harm to public plans and their members as...