Cryptocurrency in DC Plans: The DOL Explains the Digital Investment Products’ Risks and Challenges

Benefits and executive compensation partner Fred Reish and counsel Joan Neri co-authored an article for PLANADVISER discussing registered investment advisers (RIAs) who use the Department of Labor’s (DOL) Compliance Assistance Release (CAR) 2022-01 to determine whether funds that invest in cryptocurrencies should be included among 401(k) plan offerings.

In the Q&A article, one such RIA mentioned that they advise 401(k) plan committees about the investment options to be offered in their plan lineup, and they asked, “Does the Employee Retirement Income Security Act (ERISA) permit 401(k) plans to offer such investment options?”

Reish and Neri explain that while ERISA does not explicitly limit the kinds of investments that may be offered for participant direction, plan fiduciaries, such as committee members, must satisfy the act’s duties of prudence and loyalty. They note the DOL’s indication that it has concerns about the prudence of offering cryptocurrency funds in 401(k) plans.

The authors also describe the CAR, an expression of the DOL’s opinion regarding the prudence standard in the context of selecting investments in cryptocurrencies or in investment products whose values are tied to cryptocurrencies. They explain that the DOL’s view is that plan fiduciaries should exercise “extreme care” in selecting such investments.

Reish and Neri outline the DOL’s list of risks and challenges that cryptocurrency-related investment products present, including (1) difficulty understanding and evaluating the cryptocurrency investment, (2) valuation issues, (3) custodial and record-keeping challenges, (4) volatility and (5) evolving regulatory framework.

The full article is available for PLANADVISER subscribers.