In March, the Department of Labor weighed in on whether fiduciaries should permit 401(k) plans to invest in cryptocurrencies. See DOL, Compliance Assistance Release No. 2022-01 – 401(k) Plan Investments in Cryptocurrencies. See (the “Release”). And although not an unqualified “no”, the Department said that it “has serious concerns about the prudence of a fiduciary’s decision to expose” participants to “direct investments in cryptocurrencies, or other products whose value is tied to cryptocurrencies".
The Release outlines the Department’s concerns – citing first the SEC’s caution that cryptocurrency is “highly speculative”, and then that cryptocurrencies can be volatile, that plan participants can be easily misled with all the “hype,” that those cryptocurrencies would be hard to hold for custodians, hard for record-keeping, and hard to value.
But perhaps most striking is the Department’s less than gentle reminder to plan fiduciaries that they “may not shift responsibility to plan participants to identify and avoid imprudent investment options,” and instead, are the ones to do the vetting and take “appropriate measures” to “ensure the prudence” of not only investment menu options but investments that participants chose for their self-directed brokerage windows. The Department punctuates this point by announcing that it will start an “investigative program aimed at plans that offer cryptocurrencies and related products” and warning that “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" in the Release. Plan fiduciaries proactively should now consider whether and the extent to which they are currently invested in cryptocurrencies, whether and to what extent, they, in the future will offer/allow such investments, and, in particular, whether they will allow them at all in self-directed brokerage accounts. Plan administrative and investment policies and procedures (including those regarding self-directed brokerage accounts) may need to be updated and disclosed to participants. Similarly, service provider agreements may also need to be adjusted to ensure they align with plan fiduciaries’ decisions regarding investments in cryptocurrencies.