Cryptocurrency and Benefit Plans: The Feds Weigh In

The “explosive growth” in recent years of so-called “digital assets,” including cryptocurrencies such as Bitcoin, is undeniable: according to the White House, these currencies have a current market value of over $3 trillion, up from $14 billion five years ago, and “around 16% of adult Americans – approximately 40 million people – have invested in, traded, or used cryptocurrencies.”

In response, President Biden has issued an Executive Order requiring the heads of various federal agencies to submit a joint report detailing the “risks and benefits to cybersecurity, customer experience, and social-safety-net programs” brought on by the explosion in digital currencies. The Order emphasizes consumer protection, oversight, and “encourages regulators …safeguard against any systemic financial risks posed by digital assets.” Crypto scams have received significant news attention lately.

One day after the release of President Biden’s order, the U.S. Department of Labor (“DOL”) issued its own compliance report on cryptocurrencies and 401(k) plans. The message of this report is very clear: investments in crypto come with significant risks, and “plan fiduciaries [should] exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu.” The report cites “serious concerns about the prudence of a fiduciary’s decision to expose … participants to direct investments in cryptocurrencies,” which could be a signal of more concrete agency action to come.

If this was not enough to get the message across, the DOL also posted a separate blog highlighting the uncertainty in the crypto market, and reminding plans that “[t]he retirement savings of America’s workers and their families represent years of hard work and sacrifice.”

The DOL’s compliance report comes as “firms [are] marketing investments in cryptocurrencies to 401(k) plans as potential investment options,” and at least one public pension plan has made a $25 million purchase of Bitcoin. While ERISA does not prohibit investment in cryptocurrency (or any specific asset class), the DOL position on crypto is clearly one of skepticism – at best. Last September, a high-ranking DOL official called the prospect of cryptocurrency investments in 401(k) plan lineups “troubling,” and hinted at the possibility of future regulations. While no regulations have been announced yet, the President’s Executive Order and the DOL report may be a sign of regulatory action on the horizon.

If you have additional questions about cryptocurrency or related issues, please reach out to your usual employee benefits attorney.

By Will Hanley | April 13, 2022

Legal Developments