Cryptocurrency 401(k) Investment Restrictions Observed by Labor Regulators

Regulators are considering issuing a rule addressing the suitability of cryptocurrencies in 401(k) plans, Labor Secretary Marty Walsh told a House panel on Tuesday.

In response to a line of questioning about recent strongly worded guidance advising plans against allowing digital currency assets in workplace 401(k)s, Walsh told the House Committee on Education and Labor that the department is ” considering potentially going through an industry-wide rulemaking process.”

The regulation would raise an already controversial bar that the department set when it issued guidance threatening an “investigative program” against employers that allow participants to access crypto assets through their 401(k) plans. The guide triggered fierce resistance from alternative investors eager to extend their reach to workplace retirement savers.

One 401(k) provider has already sued the department for regulatory overreach, while other companies like Fidelity Investments Inc. moved forward by rolling out 401(k)-friendly crypto products, despite the stern warning. The cryptocurrency 401(k) debate has crossed political divides in Congress and caught the attention of other retirement plan regulators.

The guidance (CAR No. 2022-01) from the DOL’s Employee Benefits Security Administration was a “one-off” event meant to inform investors that the agency had a number of concerns with cryptocurrency, Walsh said.

“We didn’t tell them they couldn’t do it, but we told them we had big concerns about it,” he said.

Digital currencies are speculative and volatile investments, the earnings agency said in its guidance. Decentralization makes it difficult for plan officials to properly track and evaluate their performance, while also placing enormous pressure on record-keeping and escrow companies to ensure that non-fiduciary assets are properly stored.

agency concerns

Critics of that guidance say the department has effectively banned an entire asset class without going through a notice-and-comment rulemaking process.

“As far as I know, any time our people at EBSA have been doing any type of rulemaking process or a recommendation, we take conversations with industry professionals very seriously,” Walsh told the committee. “So, it’s not just something that’s done randomly. We have those conversations to make sure we’re not making a determination based on personal feeling. We should never do that. We should always be talking to the experts in the field on what we do.”

Walsh told the committee that the department was especially “concerned about employees who had 20% of their retirement savings in cryptocurrency,” a likely reference to Fidelity. The Boston-based plan provider recently announced the launch of a crypto 401(k) product that would allow up to 20%, but leave it up to employers to decide the appropriate level of crypto holdings.

Fidelity is among the largest 401(k) providers in the country with more than 33,000 plans and 25.8 million participants.

Walsh and the Department of Labor have been named in a federal lawsuit filed by low-cost 401(k) provider ForUsAll Inc., meanwhile. The company is expected to launch the first cryptocurrency 401(k) program later this year.

The suit claims the department chose to issue guidance rather than regulation to catch up with a rapidly evolving industry. Picking and choosing investments, the company claims, exceeds the DOL’s regulatory authority.

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