On March 10, 2022, the U.S. Department of Labor (the “DOL”) released its first guidance on including investments in cryptocurrencies in a 401(k) plan’s investment lineup. This guidance is Compliance Assistance Release No. 2022-01 (“2022-01”). It reflects the DOL’s concern about 401(k) plans offering those types of investments to participants, in plans that allow them to direct how their plan account is invested.
2022-01 begins by noting that as the U.S. Supreme Court recently explained in Hughes v. Northwestern University, “even in a defined-contribution plan where participants choose their investments, plan fiduciaries are required to conduct their own independent evaluation to determine which investments may be prudently included in the plan’s menu of options.” The DOL also notes here that fiduciaries’ failure to remove imprudent investment options constitutes a breach of their duties under ERISA.
2022-01 then states that “[a]t this
early stage in the history of cryptocurrencies, the [DOL] has serious concerns
about the prudence of a fiduciary’s decision to expose a 401(k) plan’s participants
to direct investments in cryptocurrencies, or other products whose value is
tied to cryptocurrencies.” The DOL states that those investments present
significant risks and challenges to participants’ plan accounts (e.g., significant
risks of fraud, theft, and loss) for the following reasons:
Overall, the DOL “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.”