U.S. DOL Issues Warning While Considering Crypto in Retirement Plan

Key Insights:

• The labor department cautions fiduciaries before considering crypto as a 401(k)-plan option.
• The department saw an uptick in companies marketing crypto investments as retirement-plan options.
• Labor Department also highlighted speculation, volatility, and many other concerns.

The U.S. Department of Labor (DOL) has urged caution to exercise “extreme care” while considering crypto as an option in the 401(k) plan’s investment.

According to the compliance assistance released Thursday, employers adding crypto options to their company retirement plans may breach their legal obligations to workers. It said,

“These investments present significant risks and challenges to participants’ retirement accounts, including significant risks of fraud, theft, and loss.”

The caution comes when the DOL saw an increase in companies marketing crypto investments for 401(k) plans in the recent past.

The department’s Employee Benefits Security Administration (EBSA) said it would investigate to ensure the interests of beneficiaries are adequately protected. The compliance noted,

“The plan fiduciaries responsible for overseeing such investment options should expect to be questioned about how they can square their actions with their duties of prudence and loyalty in light of the risks.”

Significant Risks

The department is skeptical of crypto as a retirement investment, given their risks. They also mentioned that these digital assets are speculative, vulnerable to volatility, and hard to value.

The bureau said this might be challenging for investors to make informed investment decisions.

Additionally, the agency laid concerns, including custodial and recordkeeping, valuation, and regulatory issues surrounding cryptocurrencies, that pose hazards.

“Cryptocurrencies are very different from typical retirement plan investments, and it can be tough, even for expert investors, to evaluate these assets and separate the facts from the hype.”

However, the department has not implied an outright ban of crypto-related investments from workplace retirement plans. But the Labor arm is putting its foot strong on the ground to protect the retirement savings of U.S. workers from extreme volatility and legal risks.

Ali Khawar, acting assistant secretary for the EBSA, said in a blog post,

“The assets held in retirement plans, such as 401(k) plans, are essential to financial security in old age – covering living expenses, medical bills and so much more – and must be carefully protected,” 

Khawar has stressed that fiduciaries must “act solely” in the financial interests of plan participants and stick to a high standard of care while managing retirement holdings.

Crypto in Pension Plans

On the other hand, pension and sovereign wealth funds are eyeing cryptos when regulators focus on a global crypto framework.

For instance, the Houston Firefighters’ Relief and Retirement Fund (HFRRF) announced last year that it had purchased Bitcoin for the defined benefit plan’s portfolio. This marks the first announced investment in BTC by a public pension fund in the U.S.

The company announced that it had invested $25 million in Bitcoin and Ethereum.

Additionally, ForUsAll announced in June ’21 that it had teamed up with the Coinbase exchange platform to allow employees to put up to 5% of their 401(k) investments in bitcoin and other cryptocurrencies.

Those employers who sign up for a self-directed cryptocurrency window receive this feature.

According to Aaron Pottichen, senior Vice President at Alliant Retirement Consulting, plan sponsors or employers offering retirement plans are generally “very unlikely” to adopt any cryptocurrency into their investment line-up.