With the rising popularity and market returns of cryptocurrency and related products (e.g., NFTs), financial service firms may advise retirement plan trustees to invest plan assets into cryptocurrencies and other similar products. But there are significant risks around this type of investment offering.
Risks that are a priority for the White House, which is why President Biden signed an executive order on March 9, 2022, to “[address] the risks and harnessing the potential benefits of digital assets and their underlying technology.”
But it’s not only a focus for the White House. The Department of Labor (DOL) “has serious concerns about the prudence of a fiduciary’s decision to expose a 401(k) plan’s participants to direct investments in cryptocurrencies….” On March 10, 2022, the DOL released Compliance Assistance Release No. 2022-01, describing several reasons for the DOL’s concern about the digital assets within retirement savings portfolios. It provides details about its concerns of speculation and extreme price volatility, uninformed decision-making, custodial and recordkeeping risks, valuation reliability and accuracy, and evolving regulatory frameworks.
While the release speaks to cryptocurrencies for 401(k) plan investments, the footnotes explain that it is intended to apply to a wide range of digital assets. Furthermore, trustees of other types of employee benefit plans are subject to the same standards and scrutiny of fiduciary responsibility under ERISA, and therefore, they would be prudent to heed this notice also.
The DOL is driven to protect participants’ and beneficiaries’ interests and protect their retirement savings. They plan to take action. EBSA will be conducting investigations into plans invested in digital assets.
Is your plan invested in digital assets? Trustees “should expect to be questioned about how they can square their actions with their duties of prudence and loyalty in light of the risks described.”
Are you considering digital assets for your plan? Read this notice, be aware of the DOL’s scrutiny of these investments and proceed with extreme caution.