US Department of Labor Urges 'Extreme Care' Before Adding Crypto to 401(k) Plans

The U.S. Department of Labor is recommending 401(k) plan sponsors to “exercise extreme care” before they consider adding a cryptocurrency option to their investment menu for plan participants.

The Labor Department said it has become aware in the last few months of firms marketing crypto investments to 401(k) plans as investment options, according to a statement Thursday.

“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 Labor Department wrote.

The Labor Department said crypto presents “significant risks and challenges to participants’ retirement accounts, including significant risks of fraud, theft and loss.” It highlighted as reasons speculation and volatility, challenges to making informed investment choices, custodial and record-keeping concerns, the lack of reliability of cryptocurrency valuations and an evolving regulatory environment.

Consequently, the Employee Benefits Security Administration (EBSA) plans to “take appropriate action to protect the interests of plan participants and beneficiaries with respect to these investments,” according to the statement. Those actions would include questioning plan sponsors that offer crypto investments how they can handle the highlighted risks.

U.S. President Joe Biden signed a first-of-its-kind executive order on cryptocurrencies on Wednesday, directing federal agencies to coordinate their approach to the sector.

The “whole-of-government” effort to regulate the crypto industry focuses on consumer protection, financial stability, illicit uses, leadership in the global financial sector, financial inclusion and responsible innovation, according to a fact sheet accompanying the Biden order.