The DOL’s Compliance Assistance Release No. 2022-01 urges plan fiduciaries to exercise ‘extreme care’ before they consider adding a cryptocurrency option to a retirement plan’s investment menu.
The goal of the compliance assistance is to protect the retirement savings of U.S. workers from extreme volatility and legal risks as retirement plan fiduciaries, considering plan investments in cryptocurrencies are required by ERISA to act solely in the financial interests of plan participants and adhere to the standards of professional care in considering investment options for participants in retirement plans.
The Employee Benefits Security Administration (EBSA) indicates that cryptocurrencies tend to be too speculative and volatile to serve a meaningful purpose in tax-qualified retirement plans. Cryptocurrencies have been subject to extreme price volatility. This volatility is due, in part, to the uncertainties of valuing these assets. Also cited is the speculative conduct of crypto market participants and the security risks including published incidents of theft and fraud. The EBSA believes that it can be extraordinarily difficult, even for expert investors, to evaluate these assets and separate the facts from the hype.
Other concerns include custodial and recordkeeping considerations. The EBSA states that cryptocurrencies are not held like traditional plan assets in trust or custodial accounts, nor are they readily valued compared with other assets or available to pay benefits and plan expenses. With some cryptocurrencies losing or forgetting a password can result in the loss of the asset forever. Other methods of holding cryptocurrencies can be vulnerable to hackers and theft.
EBSA urges fiduciaries who are considering including 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 retirement plans.
EBSA indicates that the sale of some cryptocurrencies could constitute the unlawful sale of securities in unregistered transactions. Plan fiduciaries must avoid participating in unlawful transactions, exposing themselves to liability and plan participants to the risks of inadequate disclosures and the loss of investor protections as guaranteed under securities laws.
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