The U.S. Department of Labor (DOL) has urged 401(k) investors to “exercise extreme caution” when dealing with cryptocurrencies and other digital assets, calling fraud, theft, and financial loss “significant risks.”
In a compliance report released Thursday, DOL issued a stern warning to employers seeking to increase their exposure to 401(k) cryptocurrencies, saying that any significant cryptocurrency investment in company-sponsored retirement accounts could attract legal attention.
401(k) is a retirement savings plan offered by most US employers that extends tax benefits and long-term financial security to those who opt in.
With respect to legislation relating to 401(k) investments, the Employee Retirement Security Act of 1974 (ERISA) does not specifically define which asset classes must be included in a 401(k). However, it directs fiduciaries to “show the care, skill, prudence and diligence that a prudent person would exercise” in making investment decisions “to minimize the risk of large losses.”
ERISA also places a legal obligation on fiduciaries to constantly monitor all investments in order to further mitigate any losses. This means that highly volatile assets such as cryptocurrencies can become increasingly ambiguous about 401(k) investments.
The recent DOL announcement comes as more financial services are starting to sell cryptocurrency as an investment choice for 401(k) fixed retirement accounts, including ForUsAll Inc., which announced a strategic partnership with Coinbase last June.
In a DOL blog post that accompanied the Compliance Report, EBSA Assistant Secretary Ali Khawar cautioned fiduciaries, stating: “The retirement savings of American workers and their families represent years of hard work and sacrifice…and[они] must be carefully protected.
Khawar went on to say that DOL was seriously concerned about long-term investment in any form of digital assets:
“However, at this early stage in the history of cryptocurrencies [DOL] seriously concerned about decisions about plans to encourage participants to direct investment in cryptocurrencies or related products such as NFTs, coins and crypto assets.”
Related: Cryptocurrency Tax Benefits in 401(k) May Be a Discovery
While President Joe Biden’s recent crypto-currency executive order has highlighted the risks associated with investing in digital assets, real regulatory clarity regarding cryptocurrencies and other digital assets has yet to be articulated, adding to the confusion about what investors can and cannot do with with their digital assets.