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DOL informs 401(k) plan fiduciaries about offering cryptocurrency investments

Dive brief:

  • The U.S. Department of Labor's Employee Benefits Security Administration (EBSA) cautioned 401(k) plan fiduciaries March 10 to "exercise extreme care" before adding a cryptocurrency option to their 401(k) plan's investment menu for plan participants. 
  • The warning in EBSA's Compliance Assistance Release No. 2022-01 noted that fiduciaries have a duty under the Employee Retirement Income Security Act to "act solely in the financial interests of plan participants and adhere to an exacting standard of professional care."
  • EBSA expressed "serious concerns" about the "prudence" of a fiduciary's decision to expose 401(k) plan participants to the risks of investing in cryptocurrency, which include its highly speculative nature, the difficulty of separating the hype around cryptocurrency from its true value, its vulnerability to hacking and theft, valuation concerns and evolving rules and regulations of its market.

Dive insight:

The Employee Retirement Income Security Act of 1974, or ERISA, created a set of standards associated with retirement and health plans in private industry in order to protect the financial interests of plan participants. As such, fiduciaries need to demonstrate care when managing those investments. 

EBSA notes that just because fiduciaries are not selecting the option to invest in cryptocurrency themselves, they are not exempt from responsibility under ERISA. "Fiduciaries may not shift responsibility to plan participants to identify and avoid imprudent investment options, but rather must evaluate the designated investment alternatives made available to participants and take appropriate measures to ensure that they are prudent," DOL wrote.

The agency's guidance relied on a recent Supreme Court decision, Hughes v. Northwestern University, in which the court determined that "even in a defined-contribution plan where participants choose their investments, plan fiduciaries are required to conduct their own independent evaluation to determine which investments may be prudently included in the plan's menu of options."

EBSA also announced plans to create an "investigative program" to look into plans that offer cryptocurrency investments and "related products" and to take "appropriate action" to protect plan participants and beneficiaries. 

"The plan fiduciaries responsible for overseeing such investment options or allowing such investments through brokerage windows should expect to be questioned about how they can square their actions with their duties of prudence and loyalty in light of the risks described above," EBSA warned.

This article was written by Emilie Shumway from HR Dive and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to legal@industrydive.com.

This material is provided for general and educational purposes only.  Neither Voya® nor its affiliated companies or representatives provide tax or legal advice. Please consult a tax adviser or attorney before making a tax-related investment/insurance decision.


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