DOL Warns Sponsors against Permitting Cryptocurrency-Related Investments on 401(k) Plan Investment Menus – JD Supra

The U.S. Department of Labor (DOL) last month issued Compliance Assistance Release No. 2022-1 - 401(k) Plan Investments in Cryptocurrencies (the Release) in which it strongly cautions ERISA plan fiduciaries to use extreme care before considering the inclusion of a cryptocurrency or other related option as a choice on a self-directed 401(k) plans menu of investment choices. In the Release, the Department noted that it had become aware that certain firms were marketing cryptocurrency-type investments as potential options for 401(k) plans.

The DOL reiterated that under ERISA, plan fiduciaries must act solely in the financial interests of plan participants and comply with ERISAs demanding standard of care, and that a breach of these standards could result in personal liability for plan losses. Regarding participant-directed 401(k) plans, the DOL further noted that fiduciaries responsible for the investment options have an ongoing duty to ensure the prudence of such options.

The DOL indicated that, at this current stage in the history of digital assets, it has serious reservations regarding the prudence of exposing 401(k) plan participants to cryptocurrencies or products whose value is tied to cryptocurrencies. According to the DOL, these investment options can pose significant risks (including those associated with fraud, theft and loss) and challenges for participant-directed retirement plans for the following reasons:

Importantly, the DOL not only sets forth the foregoing concerns, but goes on to provide that, based on these and related considerations, it expects to engage in an investigative program focusing on participant-directed plans that offer on their investment menus cryptocurrency and related products, and to take appropriate action to protect the interests of plan participants and beneficiaries with respect to these investments.

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DOL Warns Sponsors against Permitting Cryptocurrency-Related Investments on 401(k) Plan Investment Menus - JD Supra