Cryptocurrency and 401(k) plans: DOL urges trustees to exercise extreme caution Jobs & HR

United States: Cryptocurrency and 401(k) plans: DOL urges trustees to exercise extreme caution

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On March 11, 2022, the U.S. Department of Labor (DOL) released Compliance Assistance Release No. 2022-01 (CAR 2022-01) to provide guidance to 401(k) plan trustees considering investing in cryptocurrencies. The strongly worded statement reveals the agency’s heightened level of concern over cryptocurrency as plan investments, with the DOL warning trustees to “exercise extreme caution” before considering adding a cryptocurrency option to a range of 401(k) plans for plan participants. Although CAR 2022-01 was released just a day after President Biden signed an executive order outlining a whole-of-government strategy to ensure responsible innovation in digital assets, the use of cryptocurrency in queues of 401(k) plans has been on the DOL’s radar at least since the summer of 2021. At that time, there were statements from the Acting Assistant Secretary of the DOL’s Benefits Security Administration (EBSA) that the agency viewed the use of cryptocurrencies in the context of pension plans as a “very troubling” development given its high volatility and limited transparency.1

According to CAR 2022-01, the DOL’s concerns about the prudence of a fiduciary’s decision to expose participants in a 401(k) plan to direct investments in cryptocurrencies or other products whose value is tied to cryptocurrencies arise from the significant risks of fraud, theft, and loss that have been endemic to these asset classes at least at this early stage in their evolution. CAR 2022-01 details several aspects of crypto-currencies that are at the heart of the DOL’s concerns:

  • The highly speculative and volatile nature of cryptocurrencies – CAR 2022-01 cites investor education materials prepared by SEC staff that describe how cryptocurrencies have been subject to extreme price volatility, which may be due to the many uncertainties associated with the valuation of these assets, speculative conduct, the amount of reported fictitious transactions and widely published incidents of theft and fraud, among other factors.

  • Difficulty for participants to make informed decisions – As the DOL explains, cryptocurrencies are significantly different from typical pension plan investments, and it can be extremely difficult for even expert investors to value these assets. The DOL is concerned that participants are less likely to have sufficient knowledge of these investments or lack the technical expertise to make informed decisions about their investment. Additionally, RAC 2022-01 outlines how a trustee’s decision to include a cryptocurrency option on the menu of a 401(k) plan can be misconstrued by participants as an endorsement of those categories. assets as conservative options for plan participants.

  • Custody and record keeping issues presented – Unlike traditional plan assets that are held in trust or custodial accounts, easily valued and available to pay plan benefits and expenses, cryptocurrencies typically exist as lines of computer code in a digital wallet . In this sense, it is unclear how the ownership indices and trust requirements of ERISA can be met with these assets, since with some cryptocurrencies, the loss or forgetting of a password can lead to permanent loss of assets, and other methods of holding cryptocurrencies may be vulnerable. to pirates and theft.

  • Assessment issues – CAR 2022-01 also describes the difficulty of generating accurate and reliable valuations for cryptocurrencies. In particular, the statement mentions how there is expert disagreement on important aspects of the cryptocurrency market, noting that none of the models offered to value cryptocurrencies are as robust as traditional analysis. discounted cash flows for equities or interest and credit models for debt. In addition, cryptocurrency market intermediaries may not adopt consistent accounting treatment, and they may not be subject to the same pricing reporting and data integrity requirements as other intermediaries working with products. more traditional investments.

  • Changing regulatory landscape – According to the DOL, the current regulatory landscape governing the cryptocurrency markets is rapidly changing and some participants may operate outside or fail to comply with existing regulatory frameworks. RAC 2022-01 makes it clear that the DOL expects trustees considering including a cryptocurrency investment option to analyze how regulatory requirements may apply to the issuance, investments, trading or other activities and how those regulatory requirements might affect participants’ investments in 401(k) projects. Additionally, given the widespread use of Bitcoin and other cryptocurrencies in illicit activities, fiduciaries must consider the real possibility that law enforcement may shut down or restrict the use of platforms and devices. exchanges, thereby limiting or blocking the ability to use or trade Bitcoins.

Key points to remember

CAR 2022-01 concludes by stating that EBSA plans to conduct a program of investigation aimed at schemes that offer participants investments in cryptocurrencies and related products, and to take appropriate measures to protect the interests of participants in cryptocurrencies. plans and beneficiaries with respect to these investments. In addition, as part of this investigation, the DOL will examine how plan trustees charged with overseeing such investment options or authorizing such investments through brokerage windows are meeting their duties of care and loyalty under of ERISA in light of the significant concerns that the DOL expresses in CAR 2022.-01.

Although there has been growing demand from individual investors to add cryptocurrency exposure to their retirement accounts,2 DOL’s unequivocal position in CAR 2022-01 on the risk of cryptocurrencies as plan investment options is likely to have a chilling effect on this nascent market. That said, RAC 2022-01 focuses on the use of cryptocurrencies in 401(k) plans — exactly how the agency’s position will apply to the defined benefit plan space doesn’t is unclear. Additionally, the guidelines appear to focus on a 401(k) plan trustee’s decision to expose participants to direct investments in cryptocurrencies. Whether some of the agencies’ concerns can be mitigated by indirect investments in cryptocurrency-exposed funds — perhaps even a minimum exposure that would be subject to a hard cap — is also unclear to the moment.

While the DOL has not created a flat ban on offering 401(k) participants exposure to cryptocurrency and digital assets, in light of the DOL’s strong wording and warning of further efforts investigation, Plan Trustees who remain interested in pursuing these investment options are urged to exercise a very high level of care in all decision-making and produce sufficient documentation of this decision-making process.


1. Ted Godbout, “Khawar: Cryptocurrency Guidance on the Horizon”, National Association of Plan Advisors, July 28, 2021, available at

2. Anne Tergesen, “Saving for Retirement? Now You Can Bet on Bitcoin”, Wall Street Journal, June 25, 2021, available at

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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