On March 10, 2022, the U.S. Department of Labor (“DOL”) officially weighed in on offering cryptocurrency as an investment option in 401(k) retirement plans. In Compliance Assistance Release No. 2022-011, the DOL “cautions plan fiduciaries to exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan investment menu for plan participants.”

Primarily, the DOL advises that because retirement plan fiduciaries must adhere to prudent and loyal duties under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), which are often referred to as the “highest known to the law.”2 Keeping these legal responsibilities in mind, 401(k) plan fiduciaries must carefully weigh the pros and cons of including cryptocurrency as a plan investment option, while also documenting their decision-making process.

Further, the DOL concluded that at this early stage of cryptocurrency, it has “serious concerns”3 about including these digital investments in a 401(k) plan’s investment line-up. The DOL cited the following as reasons plan fiduciaries should take extreme caution before including these types of investments in their employer-provided retirement plans:

  • The speculative and volatile nature of cryptocurrencies
  • Concerns around the custody or recordkeeping of these types of assets
  • Challenges faced by plan participants when making an informed investment decision
  • Concerns around valuation
  • Increased and rapidly changing legislation around cryptocurrency

However, the DOL stopped short of declaring that including such investments is imprudent or that they would directly violate ERISA’s fiduciary duties. The DOL did state that it plans to launch an investigative program around 401(k) plans offering cryptocurrency investment options, ensuring that fiduciaries are complying with ERISA.

Fidelity Now Allows 401(k) Bitcoin Investments

On April 26, 2022, Fidelity – the U.S.’s largest 401(k) plan provider – decided to add Bitcoin to their investment lineup, if agreed to by employers for their individual plans. Fidelity has stated that these digital assets will become widely available throughout the rest of 2022, integrating them into fund line-ups, just like mutual or target date funds.

However, Fidelity has adopted some cautionary limitations. For instance, plan participants cannot invest more than 20 percent of 401(k) contributions in Bitcoin, and plan sponsors can further limit these investments by selecting a ceiling less than the permissible 20 percent limit.

The Industry’s Response to the DOL’s Position on Cryptocurrency in 401(k)s

The 401(k) industry has reacted sharply to the DOL’s cryptocurrency position, from sending letters to the DOL both in support of and against Compliance Assistance Release No. 2022-014 (“Release”) to filing federal litigation against the DOL.

Joint Letters to the DOL

For example, entities including the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), the Economic Policy Institute, and the National Association of Personal Financial Advisors submitted a joint letter to the DOL praising its Release5, noting that it is fully consistent with ERISA.

On the other hand, entities including the American Bankers Association, the American Benefits Council, The ERISA Industry Committee, and the U.S. Chamber of Commerce submitted a joint letter to the DOL, expressing concern over the following6 :

  • The lack of formal rulemaking and comment period on these cryptocurrency issues
  • The suggestion that plan fiduciaries exhibit “extreme care,” reflecting a different level of duty than that of prudence or loyalty under ERISA
  • Concerns that the DOL is determining which plan investments are reasonable and which are not, noting that the DOL does not have such authority to do so

As such, in this second letter, the submitters requested that the DOL withdraw the Release and instead pursue a formal notice and comment period.

Litigation Filed Against the DOL

On June 2, 2022, the 401(k) platform provider For Us All filed a lawsuit against the DOL7 in the U.S. District Court for the District of Columbia, seeking the invalidation the Release. For Us All provides cryptocurrency in its 401(k) plans’ investment lineup allowing participants to invest up to five percent of their contribution in several types of cryptocurrencies, including bitcoin and ether.

The lawsuit alleges that the DOL’s Release was an “arbitrary and capricious attempt to restrict the use of cryptocurrency in defined contributions retirement plans, in excess of its authority under the Employee Retirement Income Security Act (“ERISA”)8, and without following the notice and comment process required under the [Administrative Procedure Act].”

Claiming that the DOL’s Release is overly aggressive, the litigants suggest that the federal court vacate the DOL’s release while enjoining the DOL from enforcing its March 2022 guidance.

Additional Resources

  1. Department of Labor (2022, March 10). Compliance Assistance Release No. 2022-01. https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/compliance-assistance-releases/2022-01
  2. Id.
  3. Id.
  4. Id.
  5. American Federation of Labor and Congress of Industrial Organization (AFL-CIO), et al. (April 26, 2022). [Letter to Acting Assistant Security Ali Khawar, Employee Benefits Security Administration, U. S. Department of Labor. Addressing concerns over Compliance Assistance Release No. 2022-02, 401(k) plan investments in “cryptocurrencies”]. Retrieved from https://consumerfed.org/wp-content/uploads/2022/04/Groups-Support-DOL-Guidance-Regarding-Crypto-Assets-in-Retirement-Plans-4.26.22.pdf.
  6. American Bankers Association, et al. (April 12, 2022). [Letter to The Honorable Ali Khawar, Acting Assistant Secretary, Department of Labor. Addressing concerns over Compliance Assistance Release No. 2022-02, 401(k) plan investments in “cryptocurrencies”]. Retrieved from https://www.aba.com/-/media/documents/comment-letter/jointltrdolcrypto20220412.pdf?rev=9d745fce0f0b46f9b82c6602e7dabfd2.
  7. Forusall, Inc. v. United States Department of Labor, et al., Case 1:22-cv-01551 (Compl. June 2, 2022). Retrieved from https://resources.forusall.com/Dkt.%20001%20ForUsAll%20Complaint.pdf
  8. Id.
  9. Department of Labor (2022, March 10). Compliance Assistance Release No. 2022-01. https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/compliance-assistance-releases/2022-01
  10. Forusall, Inc. v. United States Department of Labor, et al., Case 1:22-cv-01551 (Compl. June 2, 2022). Retrieved from https://resources.forusall.com/Dkt.%20001%20ForUsAll%20Complaint.pdf
  11. U.S. Department of Labor, Employee Benefits Security Administration (EBSA). (2021). Meeting Your Fiduciary Responsibilities [Brochure]. https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/meeting-your-fiduciary-responsibilities.pdf

Pensionmark Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Financial Advisors at Pensionmark may also be registered representatives of Pensionmark Securities, LLC (member SIPC), which is affiliated with Pensionmark through common ownership.

Disclaimer: This content is intended for informational purposes only and should not be construed as legal, medical or tax advice. It provides general information and is not intended to encompass all compliance and legal obligations that may be applicable. This information and any questions as to your specific circumstances should be reviewed with your respective legal counsel and/or tax advisor as we do not provide legal or tax advice. Please note that this information may be subject to change based on legislative changes. © 2022 Sequoia Benefits & Insurance Services, LLC. All Rights Reserved

Jenny Kiesewetter — Jenny is a Retirement Plan Compliance Consultant for Sequoia, where she works with our clients to optimize and streamline retirement plan compliance. In her free time, Jenny enjoys spending time with her friends and family, traveling, live music, and dining out.