Department of Labor cautions against crypto in 401k plans

The US Department of Labor published a notice Thursday saying it will conduct an investigative program aimed at retirement plans offering crypto.

The agency advocated retirement managers exercise “extreme care” when considering cryptocurrency as a retirement investment option. 

The DOL has seen an uptick in firms marketing crypto investments for 401(k) plans in recent months, according to its notice. These defined contribution plans usually offer a variety or “menu” of investment options to participants. Some of these firms are now marketing crypto as a menu option.

As it stands, the DOL is skeptical of crypto as a retirement investment due to its volatility, custodial and record-keeping concerns, issues with reliable valuation and the murky regulatory environment. 

“At this early stage in the history of cryptocurrencies, the Department 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,” said the DOL.

Additionally, given the narrative that crypto can produce outsized returns, the DOL cautions that it may cloud investors’ judgement and attract inexpert investors. The DOL’s notice reminds those managing those accounts that they are responsible with identifying the risk of possible investments. 

“Fiduciaries may not shift responsibility to plan participants to identify and avoid imprudent investment options, but rather must evaluate the designated investment alternatives made available to participants and take appropriate measures to ensure that they are prudent,” said the notice.

As a result of the uptick in crypto retirement investment options, the Employee Benefits Security Administration will conduct an investigative program for plans that offer crypto investments. With the investigation, EBSA will “take appropriate action to protect the interests of plan participants and beneficiaries with respect to these investments,” according to the notice.