401(k) Platform Sues Federal Government Over Cryptocurrency Guidance

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A San Francisco-based provider of retirement plans filed a lawsuit this month against the Department of Labor over its warning in March that fiduciaries should exercise extreme caution before adding a cryptocurrency option to a 401 plan’s investment menu. k).

The company, ForUsAll, filed the lawsuit in the US District Court for the District of Columbia on June 2. He claims the DOL’s guidance amounted to “a ban on cryptocurrency investments without conducting a formal notice and comment rulemaking process,” according to the Bloomberg Act. The lawsuit asks the court for an injunction to prevent regulators from enforcing the guidance and to prevent investigations outside the scope of the Employee Retirement Income Security Act (ERISA).

In a blog post about the lawsuit, Fisher Phillips, an Atlanta-based law firm, said the DOL guidance had not served as an explicit ban. However, the firm said, the guidance had indicated to trustees that they would need to conduct a thorough evaluation before offering crypto in their 401(k) menu options and would likely be subject to an investigation by the Employee Benefits Security Administration. (EBSA) if they took the step of adding crypto. The result, according to the ForUsAll lawsuit, is an “arbitrary and capricious” attempt to restrict the use of cryptocurrency in retirement plans.

ForUsAll bills itself as the first 401(k) platform to provide access to cryptocurrencies. In the lawsuit, the company indicates that the DOL guidance reduced the demand for retirement plans to add cryptocurrency as an option, according to Fisher Phillips. The company’s lawsuit alleges that the DOL circumvented the Administrative Procedure Act (APA) rulemaking process by rushing its guidance in response to several Super Bowl commercials promoting cryptocurrencies, concerned that attention would draw employees to put their retirement savings into cryptocurrencies. According to the lawsuit, the guide was issued without the APA’s required notice and comment procedures, which could have taken months, perhaps even years, according to Fisher Phillips.

Jeff Schulte, CEO of the company, told Bloomberg Law that the DOL’s guidance broke with precedent that had “allowed plan sponsors to free themselves from control over investments that participants chose for themselves.” The DOL’s guidance turned him into an “armchair financial adviser” that effectively prohibited the inclusion of an asset class in 401(k) plans, he said.

“When the federal government says it is launching an investigative program, and that any small business owner who decides to make cryptocurrency available, even through a self-directed brokerage account, should expect to be questioned, they are trying to effect a ban,” Schulte said.

Schulte said the DOL’s guidance had limited investors in deciding how best to invest for retirement.

“We believe it is extremely important that all Americans have the freedom to choose how they look best, and the self-directed brokerage account has, for decades, been a trusted tool for doing just that,” he said. “We think the Labor Department’s overreach sets a worrying precedent, just because they don’t like crypto.”

In May, Ali Khawar, acting deputy secretary of the DOL and principal deputy assistant secretary of EBSA, told Bloomberg Law that the agency’s guidance did not represent a ban nor was it an attempt to create “a backdoor way of regulating brokerage windows.” in a whole new way.” .” Khawar said the guide serves to highlight the volatility of cryptocurrency investments and the difficulty of determining their market value.

ForUsAll, Fidelity Investments, and various trade organizations representing retirement fund and plan sponsors have publicly called on the Department of Labor to revoke its guidance. Shortly after the DOL issued its guidance in March, Fidelity launched a crypto product for 401(k) investors.

In addition, Fisher Phillips noted, Sen. Tommy Tuberville (R-AL) introduced the proposed Financial Freedom Act on May 5 that would prohibit the DOL from limiting the types of investments workers can invest in through their self-directed brokerage accounts. , including 401(k)

In his post, Fisher Phillips advised that employers considering digital assets for their 401(k) investment menu should consider EBSA scrutiny for now. To put a cryptocurrency on their menu, they will want to have a “robust” monitoring process in place and prepare for a potential EBSA audit.

“While several financial experts hope that cryptocurrencies may eventually have a place in 401(k) offerings, the time frame for this adoption and the parameters for such inclusion remain to be seen,” according to the post.

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