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Department of Labor Discourages 401(k) Plans from Offering Cryptocurrency as an Investment Option

Under ERISA, the federal statute that regulates private pension plans, employers that sponsor 401(k) or 403(b) plans have a fiduciary duty to act prudently in selecting plan investment options.

In Compliance Assistance Release No. 2022-01, the U.S. Department of Labor (DOL) recently discouraged in strong terms 401(k) plans from offering cryptocurrencies as investment options. The DOL's position would apply equally to 403(b) plans.

DOL urged plan fiduciaries to “exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu for plan participants.” The DOL didn’t mince words: “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.”

DOL suggested a 401(k) plan that offered cryptocurrency as an investment option would be investigated. The DOL said it “expects to conduct an investigative program aimed at plans that offer participant investments in cryptocurrencies and related products, and to take appropriate action.”

DOL further stated that plan fiduciaries who allow cryptocurrency investments "should expect to be questioned about how they can square their actions with their duties of prudence and loyalty...”

DOL’s warning was recently underscored by the precipitous drop in crypto markets, which lost more than $270 billion.

Conclusion

It would be unduly risky for plan fiduciaries to offer cryptocurrencies as an investment option. Such a decision would expose plan fiduciaries to lawsuits by the DOL and plan participants. In short, don’t do it.

If you have any questions, please contact Theodore P. Stein.

Theodore P. Stein
410-576-4229 • tstein@gfrlaw.com