The US Department of Labor has advised 401(k) participants to “exercise extreme caution” when dealing with cryptocurrencies and other digital assets, noting “substantial dangers” such as fraud, theft, and financial loss.
The Department of Labor issued a sharp warning to firms seeking to raise their 401(k) exposure to cryptocurrencies in a compliance report released on Thursday, indicating that any large crypto investments within company-sponsored retirement funds may attract legal attention.
Most American workplaces offer a 401(k) retirement savings plan that provides tax benefits and long-term financial security to individuals who participate.
The Employee Retirement Income Security Act of 1974 (ERISA), which governs 401(k) investments, does not specify which asset classes must be included in a 401(k) plan (k). When making investment decisions, however, it instructs fiduciaries to “display the care, skill, judgment, and diligence that a prudent person would exhibit” in order to “minimize the risk of substantial losses.”
Fiduciaries are also required by ERISA to monitor all investments on a regular basis in order to further limit potential losses. As a result, highly volatile assets like cryptocurrencies may become increasingly unclear in terms of 401(k) investments.
The current DOL announcement comes as an increasing number of financial institutions, like ForUsAll Inc., which established a strategic relationship with Coinbase in June last year, continue to offer crypto as an investment option for 401(k) fixed retirement accounts.
Employee Benefits Security Administration (EBSA) Assistant Secretary Ali Khawar cautioned fiduciaries in a DOL blog post accompanying the compliance report, saying, “The retirement savings of America’s workers and their families represent years of hard work and sacrifice… and [they] must be carefully protected.”
Khawar went on to remark that the Department of Labor was concerned about long-term investments in any type of digital asset.
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