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DOL Warns Plan Fiduciaries of the Substantial Risks of Cryptocurrency Investments

Steven.Lofchie@friedfrank.com's picture
Commentary by Steven Lofchie

The Department of Labor's Employee Benefits Security Administration ("EBSA") reminded 401(k) plan fiduciaries of their duties to participants when considering plan investments involving cryptocurrencies.

In a Compliance Assistance Release, the DOL emphasized that, under ERISA, fiduciaries must act solely in the financial interests of plan participants and must adhere to “an exacting standard of professional care." The DOL stated that it has "serious concerns" about the prudence of a fiduciary’s decision to expose participants to the risks associated with investments in cryptocurrencies. The DOL highlighted these risks, including (i) the volatility and speculative nature of crypto investments, (ii) valuation concerns, (iii) the difficulty in making informed investment decisions on these assets, and (iv) the evolving regulatory environment.

The EBSA stated that it will be conducting an investigative program into all plan fiduciaries that offer participants investments in cryptocurrencies and will make all efforts to protect the interests of plan participants and beneficiaries with respect to these investments.

Commentary

On March 9, President Biden signed an Executive Order titled "Ensuring Responsible Development of Digital Assets." (See prior coverage.) Digital asset and crypto-enthusiasts hoped that this Order would open a process to rationalize the U.S. regulatory treatment on digital assets and maybe even loosen the regulatory reins to encourage development. (Note: SEC Commissioner Lee had previously described digital assets and an industry that had grown in defiance of existing laws and regulations.) 

While the Order is largely a hodgepodge laundry list of positives and negatives with regard to the digital industry, the President signaled no clear direction other than that there should be numerous committees formed and that they should work together. Today's statement from the DOL should quash any optimism that the Administration will rethink its views on crypto.

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