DOL Warns About Use of Crypto in 401(k)s, Releases Guidance

Challenge for plan participants to make informed investment decisions: Cryptocurrencies are often promoted as innovative investments that offer investors unique potential for outsized profits.

Custodial and record-keeping concerns: Cryptocurrencies are not held like traditional plan assets in trust or custodial accounts, readily valued and available to pay benefits and plan expenses. Instead, they generally exist as lines of computer code in a digital wallet.

Valuation concerns: The Department of Labor is concerned about the reliability and accuracy of cryptocurrency valuations. Experts have described the question of how to appropriately value cryptocurrencies as complex and challenging.

Evolving regulatory environment: Rules and regulations governing the cryptocurrency markets may be evolving, and some market participants may be operating outside of existing regulatory frameworks or not complying with them.

Khawar said Thursday in a blog post that in recent months, “some financial services firms have begun marketing investments in cryptocurrencies as potential investment options for participants in 401(k)s. At this early stage in the history of cryptocurrencies, however, the U.S. Department of Labor has serious concerns about plans’ decisions to expose participants to direct investments in cryptocurrencies or related products, such as NFTs, coins, and crypto assets.”

President Joe Biden’s recent executive order on ensuring responsible development of digital assets, Khawar continued, “highlights the significant financial risks digital assets can pose to consumers, investors and businesses in the absence of appropriate protections.  Cryptocurrency has gained mainstream popularity and notoriety, but there is still great uncertainty about how the market will develop, and little agreement on investing fundamentals relating to cryptocurrency.”