The U.S. Department of Labor (DOL), Employee Benefits Security Administration, (EBSA), on March 10, 2022 released Compliance Assistance Release No. 2022-01, 401(k) Plan Investments in Cryptocurrencies.
The DOL indicates that it has become aware of firms marketing investments in cryptocurrencies as potential investment options for 401(k) plan participants. The DOL cautions plan fiduciaries to exercise extreme care before adding such an option to a 401(k) plan’s investment menu.
The DOL notes that the Securities and Exchange Commission (SEC) has cautioned that investment in a cryptocurrency is highly speculative. When included in an investment menu, the fiduciary is effectively telling the plan’s participants that knowledgeable investment experts have approved the cryptocurrency option as a prudent option for plan participants. There are also custodial, recordkeeping and valuation concerns.
Based on those concerns, EBSA will conduct an investigative program aimed at plans that offer participant investments in cryptocurrencies and related products and will take appropriate action to protect the interest of plan participants. Plan fiduciaries responsible for overseeing such investment options or allowing such investments through brokerage windows should expect to be questioned about how their actions meet their duties of prudence and loyalty in light of the risks identified in the Compliance Assistance Release.
Note that although the Release is not a regulation, it does provide insight into the position EBSA will take in any audit or investigation. The release also indicates that fiduciaries have a duty to monitor a fund offered through a brokerage window in the case of cryptocurrency investments.
For now, extreme caution is advised with respect to any cryptocurrency investment under a 401(k) plan or any plan where participants exercise control over their investments.
This information is for educational purposes only to provide general information and a general understanding of the law. It does not constitute legal advice and does not establish any attorney-client relationship.