The Department of Labor has many questions about Fidelity Investments' decision to offer cryptocurrency investments to 401(k) plans, having received a heads-up on the retirement giant's plans only one day before the company announced its strategy.
The volatility of cryptocurrencies "is troubling to us," said Ali Khawar, the DOL's acting assistant secretary for the Employee Benefits Security Administration, in an interview.
The fact that the Fidelity program would allow up to 20% of a participant's retirement account be invested in cryptocurrency is unsettling because "that is a lot to allocate to a single asset," he said. Earlier guidance from the IRS noted: "If you invest more than 20% of your retirement savings in any one company or industry, your savings may not be properly diversified."
Mr. Khawar said the DOL needs to learn more details about Fidelity's plan, whose broad outline was discussed in an April 26 news release. Fidelity's program will be available to clients in mid-2022.
Mr. Khawar said he wasn't contacted by Fidelity. A senior DOL official declined to say which Labor Department official received the notice, the name of the Fidelity executive who provided it or how the information was transmitted to the DOL. Representatives of Fidelity and EBSA are scheduled to meet this week to discuss the matter.
Fidelity's announcement came six weeks after the Labor Department issued a March 10 "compliance assistance release" telling 401(k) plan fiduciaries to "exercise extreme care" before selecting cryptocurrency as an investment option. The report said EBSA will conduct "an investigative program aimed at plans that offer participant investments in cryptocurrencies and related products."
EBSA will take "appropriate action to protect the interests of plan participants and beneficiaries with respect to these investments," the report said.
The senior DOL official said in an interview that the compliance guidance reflects the unanimous January ruling by the U.S. Supreme Court that plan fiduciaries have a duty to monitor all investments in a plan lineup. "They have the burden to make prudent investments," said the DOL official, referring to the case of Hughes et al. vs. Northwestern University et al.
In his interview, Mr. Khawar said EBSA issued the guidance in part because cryptocurrency is still a young investment option, marketplace regulations are evolving and some promotions soft-pedal the risks of cryptocurrency.
"We are not banning" cryptocurrencies in retirement plans, Mr. Khawar said. "This is not necessarily forever guidance. As the context changes, it's entirely possible our answers will change."
Meanwhile, the Securities and Exchange Commission recently announced it is expanding the size of a unit designed to protect consumers in crypto markets. And legislators recently introduced a bill in the U.S. House of Representatives that would give more crypto monitoring power to the Commodity Futures Trading Commission.