Every Little Thing … Considerations Before Adding Crypto to a 401(k) Plan

by Alex Smith

Fidelity Investments recently announced that it will offer its 401(k) plan clients the opportunity to offer bitcoin as a 401(k) plan investment option later this year.  While this may sound intriguing to some plan fiduciaries and participants, plan fiduciaries should proceed with extreme caution.

Based on the Department of Labor’s (DOL) public pronouncements, it appears the DOL has serious doubts about whether 401(k) plan fiduciaries who include cryptocurrency among their 401(k) plan’s investment options comply with their ERISA fiduciary duties.  In March, the DOL issued Compliance Assistance Release No. 2022-01, in which it expressed “serious concerns” about the prudence of 401(k) plan fiduciaries including cryptocurrency as a 401(k) plan investment option and announced it plans to conduct an investigative program related to cryptocurrency investments by 401(k) plans.  For more information on Compliance Assistance Release No. 2022-01, please see our prior blog post Can’t Touch This … DOL Discourages Plans From Investing in Cryptocurrency.  Following Fidelity’s announcement, a DOL official expressed “grave concerns” about the offering and indicated that the DOL intends to meet with Fidelity to discuss its concerns in comments to the Wall Street Journal.

Fidelity’s announcement indicates that it will be the plan fiduciaries’ decision whether or not to offer bitcoin as a plan investment option.  Fidelity has no fiduciary responsibility under ERISA related to its bitcoin offering.  Instead, each 401(k) plan’s fiduciaries are responsible for satisfying ERISA’s fiduciary duties of prudence and loyalty when selecting and monitoring investment options for their plan.

A plan fiduciary that adds bitcoin or any other cryptocurrency to their 401(k) plan’s investment lineup risks incurring the wrath of the DOL and/or plaintiff’s attorneys.  While cryptocurrency must be subject to the same rigorous review that would apply to any plan investment option, such as the more typical mutual funds, the DOL’s public pronouncements indicate that it is extremely skeptical cryptocurrency can survive such a review.  Any plan fiduciaries that are considering adding cryptocurrency to their plan’s investment lineup should consult with ERISA counsel and the plan’s investment advisor.