On March 10, the Department of Labor (DOL) released Compliance Assistance No. 2022-01, which cautions plan fiduciaries to exercise extreme care before considering adding a cryptocurrency option in a 401(k), 403(b), or other retirement plan investment menu. One of the key roles of a plan fiduciary is the prudent selection and monitoring of investments available within the plan. Failure to remove an imprudent investment is a breach of that duty.
The DOL noted concerns about the prudence of exposing plan participants to direct investments in cryptocurrency or other products whose value is tied to cryptocurrencies. The DOL believes these types of investments present significant risks of fraud, theft, and loss.
The DOL outlines five risks and challenges related to maintaining cryptocurrencies in retirement plans:
- Speculation and volatility – the SEC describes investments in crypto as highly speculative, and the investments have been subject to extreme price volatility
- Challenges for participants to make informed investment decisions – given the newness of these products, participants are less likely to have sufficient knowledge about the investments, compared to more traditional options, to make informed decisions about investing in them
- Custody and recordkeeping – Crypto is not held in trusts or custodial accounts like traditional plan assets
- Valuation – unclear or conflicting models for valuing cryptocurrencies make reliable and accurate valuations difficult at this time
- Evolving regulatory framework – the rules and regulations governing crypto continue to evolve at a fast pace
If you have questions about cryptocurrency in retirement plans or the prudent selection and monitoring of investment menus, contact a Multnomah Group consultant.
Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice. Any views expressed herein are those of the author(s) and not necessarily those of Multnomah Group or Multnomah Group’s clients.