Labor Department Urges Caution on Crypto Retirement Plans

The U.S. Department of Labor is warning retirement plan fiduciaries to use caution before adding a cryptocurrency option to a 401(k) plan’s investment menu.

“At this early stage in the history of cryptocurrencies, the Department has serious concerns about the prudence of a fiduciary’s decision to expose a 401(k) plan’s participants to direct investments in cryptocurrencies, or other products whose value is tied to cryptocurrencies,” the department said in a briefing Thursday (March 10).

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Because of its concerns, the department’s Employee Benefits Security Administration said it expects to investigate plans that offer investments in cryptocurrencies, and the people overseeing these investments “should expect to be questioned about how they can square their actions with their duties of prudence and loyalty in light of the risks.”

Among the reasons for concern are potential and “significant” risks of loss, theft and fraud, the department said.

First, the briefing refers to a warning from the Securities and Exchange Commission (SEC) that investment in a cryptocurrency is highly speculative.

“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, widely published incidents of theft and fraud, and other factors,” the briefing said.

This volatility, the briefing said, can have a “devastating impact on participants,” especially those nearing retirement. In addition, the Labor Department said plan participants may not make informed decisions when investing in cryptocurrencies.

“Cryptocurrencies are very different from typical retirement plan investments, and it can be extraordinarily difficult, even for expert investors, to evaluate these assets and separate the facts from the hype,” the briefing noted.

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The department also noted that some methods of holding cryptocurrencies are vulnerable to hackers and theft, and expressed concern about the accuracy of crypto valuations.

The briefing comes the same week that President Joe Biden issued executive order creating a single, government-wide policy on cryptocurrencies and other digital assets. Among the order’s areas of focus: consumer and investment protection.