DOL Warns Against Allowing Cryptocurrency in 401(k) Plans  

By Janice M. Fortin, CPA, MST, Shareholder, Employee Benefit Plan Group

The U.S. Department of Labor (DOL) recently released compliance assistance for 401(k) plan fiduciaries, warning them against adding a cryptocurrency option to its plan investment menu. According to the release, the DOL’s Employee Benefits Security Administration expresses serious concerns about the prudence of a fiduciary’s decision to expose a plan participant to direct investments in cryptocurrencies due its limited history.  

With cryptocurrency still in its early stages, these investments present significant risks and challenges to participants’ retirement accounts, including potential fraud, theft and loss for the following reasons:  

• Speculative and volatile investments. At this stage in their development, cryptocurrencies have been subject to extreme price volatility, which may be due to the many uncertainties associated with valuing these assets, speculative conduct, the amount of fictitious trading reported and widely published incidents of theft and fraud.  
• Inability for plan participants to make informed investment decisions. Participants are less likely to have sufficient knowledge about cryptocurrency investments, as compared to traditional investments, or have the technical expertise necessary to make informed decisions about investing in them. When plan fiduciaries choose to include a cryptocurrency option on a 401(k) plan’s menu, they effectively tell the plan’s participants that knowledgeable investment experts have approved the cryptocurrency option as a prudent option for plan participants. 
• Custodial and recordkeeping concerns. Cryptocurrencies generally exist as lines of a computer code in a digital wallet, unlike traditional plan assets which are held in trusts or custodial accounts that are readily valued and available to pay benefits and plan expenses. This could present several custodial and recordkeeping issues and result in additional difficulties for fiduciaries of retirement plans.  
• Valuation concerns. The DOL expressed concern regarding the reliability and accuracy in cryptocurrency valuations due to the complexity in valuing them. Because cryptocurrencies are very different from typical retirement plan investments, it can be extremely challenging to evaluate these assets, even for expert investors.   
• Evolving regulatory environment. Rules and regulations governing the cryptocurrency markets may be evolving, and some market participants may be operating outside of existing regulatory frameworks or not complying with them. As a result, fiduciaries who are considering whether to include a cryptocurrency investment option will have to include in their analysis how regulatory requirements may apply to issuance, investments, trading, or other activities and how those regulatory requirements might affect investments by participants in 401(k) plans. Plan fiduciaries must take care to avoid participating in unlawful transaction, exposing themselves to liability and plan participants to the risks of inadequate disclosures and the loss of investor protections guaranteed under the securities laws. 

Per the DOL’s recommendation, we encourage fiduciaries to proceed with caution if exploring cryptocurrency investments as a plan option until there is more data and history available. 

Doeren Mayhew’s dedicated Employee Benefit Plan Group is comprised of 401(k) auditors who work closely with plan fiduciaries to assist with their responsibilities in remaining compliant and support its good standing. For assistance with your 401(k) audit needs, contact us today.