Home Alternative Investments 401(k) Crypto Investment Restrictions Eyed by Labor Regulators

401(k) Crypto Investment Restrictions Eyed by Labor Regulators

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Bloomberg Law

Regulators are considering whether to issue a rule that would address the appropriateness of cryptocurrency in 401(k) plans, Labor Secretary Marty Walsh told a House panel Tuesday.

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

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

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

The guidance (CAR No. 2022-01) by DOL’s Employee Benefits Security Administration was a “one-off” event intended 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 major concerns about it,” he said.

Digital currencies are speculative and volatile investments, the benefits agency said in its guidance. Decentralization makes it difficult for plan officials to properly track and evaluate their performance while putting enormous pressure on recordkeeping and custodial firms to ensure the non-fiat assets are properly stored.

Agency Concerns

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

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

Walsh told the committee that the department was especially “concerned about employees having 20% of their retirement savings put in cryptocurrency,” a likely reference to Fidelity. The Boston-based plan provider recently announced the rollout of a 401(k) crypto product that would allow for as much as 20%, but would defer to employers to decide the appropriate level of crypto holdings.

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

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

The suit claims that the department opted to issue guidance in lieu of a regulation in order to catch up with a rapidly evolving industry. Picking and choosing investments, the company claims, exceeds DOL’s regulatory authority.

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