DOL Rescinds Prior Crypto Guidance for 401(k) Plans
Commentary by Gage Raju-Salicki
The US Department of Labor withdrew previous guidance that discouraged fiduciaries from including cryptocurrency in 401(k) retirement portfolios.
In a new Employee Benefits Security Administration "Compliance Assistance Release," the DOL rescinded its prior 2022 guidance, which reminded fiduciaries that, under ERISA, they must prioritize the financial interests of plan participants and maintain a high standard of professional care. In that prior guidance, the DOL expressed concerns about the prudence of offering cryptocurrency investments in retirement plans, citing risks such as extreme volatility, valuation challenges, limited reliable information, and an uncertain regulatory environment. (See previous coverage.)
In rescinding this guidance, the DOL stated that previous language warning "plan fiduciaries to exercise extreme care" before allowing investments in cryptocurrency "deviated" from the requirements of ERISA. The DOL stated that this language "marked a departure" from the Department’s traditional stance of remaining neutral and focusing on general principles when it comes to fiduciary investment choices. The DOL reemphasized its "neutral stance" on the offering of cryptocurrency as part of a plan moving forward.
In a statement, the Investment Company Institute ("ICI") praised the Department of Labor for its action. The ICI reiterated its 2022 position that the guidance "was inconsistent with law and lacked a legal basis." The ICI also emphasized that the decision to offer cryptocurrency in retirement plans should rest with fiduciaries, who "are in the best place [to] make [these] decisions."
Commentary
The Department of Labor's decision to rescind its (effective) prohibition on cryptocurrencies in 401(k) retirement portfolios comes as a number of other federal agencies have shown increasingly open attitudes toward cryptocurrencies. (See e.g. the SEC’s recent statement on staking.)
This DOL decision is in keeping with the SEC's decision to authorize Bitcoin spot ETFs or rescind Staff Accounting Bulletin 121. Although this DOL decision did not require a court battle invoking the Administrative Procedure Act or the need for congressional action, it also has wide ramifications. Retirement plans that may more freely include cryptocurrency offer great potential upside to protocols.
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