Labor Department Sounds Alarm on 401(k) Cryptocurrency Investments

Labor Department Sounds Alarm on 401(k) Cryptocurrency Investments

03/17/22

By Jane Smith

The U.S. Labor Department’s Employee Benefits Security Administration (EBSA) has recently issued guidance warning about the risks involved in offering and using cryptocurrency as investment options in 401(k)-type retirement plans.

In a Compliance Assistance Release issued March 10, the Department said it has “become aware of firms marketing investments in cryptocurrencies to 401(k) plans as potential investment options for plan participants….” And that these “investments present significant risks and challenges to participants’ retirement accounts, including significant risks of fraud, theft, and loss…”

As those participating in 401(k) plans rely on their employers to provide prudent investment choices, the Pension Rights Center applauds EBSA’s quick action to alert employers about potentially risky investment choices with the goal of preventing participants from unknowingly putting their hard-earned money into risky investments.

The compliance release reminds employers of their fiduciary duty to provide prudent investments in a plan’s investment menu and to remove imprudent choices. In the release, the Department said it “has serious concerns about the prudence of a fiduciary’s decision to expose 401(k) plan participants to direct investments in cryptocurrencies, or other products whose value is tied to cryptocurrencies.”

The release also listed several characteristics that make cryptocurrency investments risky and imprudent: they are speculative and volatile investments; participants may be unable to fully evaluate their risks; and loss of a password can cause the disappearance of the investment, which typically consists of “lines of computer code in a digital wallet.” There are additional concerns about the “reliability and accuracy of cryptocurrency valuations,” EBSA said.

In a warning to plans, EBSA said it intends to investigate those that offer cryptocurrency investments and “to take appropriate action to protect the interests of plan participants and beneficiaries with respect to these investments.”

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