Can’t Touch This … DOL Discourages Plans From Investing in Cryptocurrency

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by Becky Achten

Among the many phrases of ERISA, one that is familiar to investment fiduciaries is the requirement to choose investments with the care, skill, prudence, and diligence that a prudent person who is familiar with such matters would use. Recently the Department of Labor (DOL) issued guidance on how this prudence standard applies to fiduciaries who offer cryptocurrency investment alternatives to participants.

In Compliance Assistance Release 2022-01, the DOL reminds fiduciaries of their important role in selecting investments for participant direction. Plan fiduciaries must evaluate each investment option made available to participants to ensure they are prudent. Failure to remove an imprudent investment is a breach of duty.

In the Release, the DOL states that it has serious concerns regarding the prudence of cryptocurrency investments as an option for participant direction.  The DOL cites the following reasons that these types of investments present considerable risks to participants:

  • They are highly speculative and subject to extreme volatility;
  • They are difficult to evaluate and determine relative facts;
  • They are also difficult to adequately value;
  • They are not held in traditional trust or custodial accounts, making recordkeeping difficult; and
  • The regulatory environment is new and evolving.

Participants rely on plan fiduciaries to make informed decisions.  By offering cryptocurrency investment options within a 401(k) plan, participants may assume that those investments are reasonable and safe.  The reality is that these volatile investments may not be appropriate for retirement savings at all.

If your 401(k) plan is already offering cryptocurrency as an investment option, you better get your fiduciary ducks in a row.  The DOL says it’s “Hammer time!”  They have warned plan fiduciaries that the Employee Benefit Security Administration office will be conducting an investigative program aimed at plans offering cryptocurrency as an investment option and will take action to protect participants.  Plan fiduciaries will need to be able to demonstrate the decision-making process that led them to believe that cryptocurrency as an investment option meets the loyalty and prudence standards.