DOL Provides Guidance on the Use of Cryptocurrencies in ERISA Plans

March 11, 2022

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The Department of Labor Employee Benefits Security Administration (EBSA) cautions plan fiduciaries to exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu for plan participants. While using the term cryptocurrency, EBSA makes clear that the guidance would apply to a wide range of “digital assets.”

DOL’s guidance reminds fiduciaries that they must act solely in the financial interests of plan participants and adhere to an exacting standard of professional care — and fiduciaries who breach those duties are personally liable for any losses to the plan resulting from that breach. This includes consideration of whether to include an option for participants to invest in cryptocurrencies.

EBSA finds that at this early stage in the history of cryptocurrencies, it has serious concerns about the prudence of a fiduciary’s decision to expose 401(k) plans’ participants to direct investments in cryptocurrencies or other products whose value is tied to cryptocurrencies.

EBSA cites several reasons why plan fiduciaries should be cautious when deciding whether to add cryptocurrencies to a plan’s investment line-up:

• Speculative and Volatile Investments. Investment in a cryptocurrency is highly speculative and has been subject to extreme price volatility.
• Plan Participants’ Informed Decision-Making. Plan participants are less likely to have sufficient knowledge about these investments, as compared to traditional investments, or to have the technical expertise necessary to make informed decisions about investing in them.
• Custodial and Recordkeeping Concerns. Cryptocurrencies are not held like traditional plan assets in trust or custodial accounts, readily valued and available to pay benefits and plan expenses.
• Valuation Concerns. There is currently no consensus on how to appropriately value cryptocurrencies.
• Evolving Regulatory Environment. Cryptocurrencies may be operating outside of existing regulatory frameworks or not complying with them.

As noted in a recent Supreme Court case, cited by EBSA in the guidance, even in a 401(k) plan where participants choose their investments, plan fiduciaries must conduct their own independent evaluation to determine which investments may be prudently included in the plan’s menu of options.

An important takeaway is that EBSA expects to conduct an investigative program aimed at 401(k) plans that offer participant investments in cryptocurrencies and related products, and to take appropriate action to protect the interests of plan participants and beneficiaries with respect to these investments.

EBSA’s guidance is available here.