The U.S. Department of Labor (“DOL”) last month released Compliance Assistance Release No. 2022-1 – 401(k) Plan Investments in “Cryptocurrencies” (the “Release”) in which it strongly cautions ERISA plan trustees to use “extreme care” before considering inclusion of a cryptocurrency or other related option as a choice in a plan’s investment choice menu 401(k) self-directed. In the statement, the department noted that it has become aware that some companies are marketing cryptocurrency-like investments as potential options for 401(k) plans.
The DOL reiterated that under ERISA, plan trustees must act solely in the financial interests of plan participants and comply with ERISA’s high standard of care and that a breach of those standards could result in personal liability for plan losses. With respect to participant-directed 401(k) plans, the DOL further noted that trustees responsible for investment options have an ongoing duty to ensure the prudence of those options.
The DOL has indicated that at this current point in the history of digital assets, it has serious reservations about the caution of exposing 401(k) plan participants to cryptocurrencies or products whose value is related to cryptocurrencies. According to the DOL, these investment options can pose significant risks (including those associated with fraud, fraud and loss) and challenges for member-managed pension plans for the following reasons:
- Cryptocurrencies are speculative and volatile investments;
- There are significant challenges regarding the ability of plan members to make informed investment decisions;
- There are custodial concerns (including vulnerability to hacking and then), given that cryptocurrency is not held, like more traditional assets, in trust or custodial accounts, and concerns relating to the maintenance of records relating to those assets;
- There are concerns about the reliability and accuracy of cryptocurrency valuations; and
- The regulatory environment relating to cryptocurrencies is actively evolving and some market participants may act outside or fail to comply with current regulatory frameworks.
It is important to note that the DOL not only states the above concerns, but goes on to state that, based on these and related considerations, it plans to engage in a directed plan-based investigative program. by participants who offer cryptocurrency and related products on their investment menus. , and “take appropriate action
measures to protect the interests of plan participants and beneﬁciaries with respect to such investments.