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DOL Issues Big Caution on Crypto

Regulatory Agencies

The U.S. Department of Labor has published compliance assistance for 401(k) plan fiduciaries considering plan investments in cryptocurrencies, in an effort aimed at protecting the retirement savings of U.S. workers.

The department’s Employee Benefits Security Administration (EBSA), published Compliance Assistance Release No. 2022-01 March 10 cautioning plan fiduciaries to exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu for plan participants. 

“Today’s announcement reminds plan fiduciaries of their important role in selecting investment options for 401(k) plan menus,” said EBSA acting head Ali Khawar. “At this stage of cryptocurrency’s development, fiduciaries must exercise extreme care before including direct investment options in cryptocurrency.”

The guidance states that at this early stage in the history of cryptocurrencies, the DOL has “serious concerns about the prudence of a fiduciary’s decision to expose a 401(k) plan's participants to direct investments in cryptocurrencies” or other products whose value is tied to cryptocurrencies. These investments “present significant risks and challenges to participants’ retirement accounts, including significant risks of fraud, theft, and loss,” the release states, citing several specific reasons, including:

  • Cautions from the SEC that investment in a cryptocurrency is “highly speculative.”
  • Cryptocurrencies are “very different” from typical retirement plan investments, and “it can be extraordinarily difficult, even for expert investors, to evaluate these assets and separate the facts from the hype.”
  • Cryptocurrencies are not held like traditional plan assets in trust or custodial accounts, meaning they might not be readily valued and available to pay benefits and plan expenses.
  • Concerns about the reliability and accuracy of cryptocurrency valuations. 
  • Rules and regulations governing the cryptocurrency markets are evolving, and some market participants may be operating outside of existing regulatory frameworks or not complying with them.

Based on these and other concerns, EBSA says it expects to conduct an investigative program aimed at plans that offer participant investments in cryptocurrencies and related products, and to take appropriate action to protect the interests of plan participants and beneficiaries with respect to these investments. “The plan fiduciaries responsible for overseeing such investment options or allowing such investments through brokerage windows should expect to be questioned about how they can square their actions with their duties of prudence and loyalty in light of the risks described above,” the guidance concludes.

At last year’s NAPA DC Fly-In Forum, Khawar outlined the key areas the department is working on, including both cryptocurrency and cybersecurity issues, noting that while he didn’t have much specific information to share, reports about the use of cryptocurrency in 401(k) plan lineups were troubling and that he anticipated future guidance. 

And now we have it.