The Department of Labor on Thursday issued a "compliance assistance" document for 401(k) plan fiduciaries telling them to "exercise extreme care" before selecting cryptocurrency as an investment option in plan menus.
To support the DOL policy, the Employee Benefits Security Administration will conduct "an investigative program aimed at plans that offer participant investments in cryptocurrencies and related products," the document said. EBSA will take "appropriate action to protect the interests of plan participants and beneficiaries with respect to these investments."
Fiduciaries who include such investment options or who allow such investments through self-directed brokerage accounts "should expect to be questioned about how they can square their actions with their duties of prudence and loyalty in light of" potential risks associated with cryptocurrencies, said the document referring to ERISA's requirements.
In a news release accompanying the guidance document, EBSA Acting Assistant Secretary Ali Khawar said, "At this stage of cryptocurrency's development, fiduciaries must exercise extreme care before including direct investment options in cryptocurrency."
Although the news release specifically mentioned cryptocurrencies, "the same reasoning and principles also apply to a wide range of 'digital assets' including those marketed as 'tokens,' 'coins,' 'crypto assets' and any derivatives thereof," the guidance document said.
The DOL has "serious concerns about the prudence of a fiduciary's decision to expose a 401(k) plan's participants to direct investments in cryptocurrencies, or other products whose value is tied to cryptocurrencies," the document said. "These investments present significant risks and challenges to participants' retirement accounts, including significant risks of fraud, theft, and loss."
The complete guidance document is on the EBSA website.