Late last month, Fidelity Investments created a minor firestorm when it announced that it would allow retirement plan sponsors to offer bitcoin as an investment option for participants. In reaction to this move, the Department of Labor (DOL) pointed to the advisory it issued in March of this year. In its Compliance Assistance Release 2022-01, the DOL strongly “cautions plan fiduciaries to exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan's investment menu for plan participants.” The Release also indicates that the DOL expects to initiate an investigative program aimed at plans that offer cryptocurrency investments and related products to participants.
In its guidance, the DOL notes that plan sponsors have a fiduciary duty to choose investment options that are prudent for retirement savings strategies. At this time, the speculative nature, volatility, high fees, and risks of fraud and theft present significant concerns regarding the inclusion of cryptocurrency as a retirement plan investment option. The DOL basically warns plan sponsors that including this option either as part of a plan’s core investment menu or through a brokerage window raises questions over fulfillment of their fiduciary obligations and resulting liability in the event of plan participants’ losses associated with these investments. Although some industry organizations and others critical of the DOL’s position have attempted to persuade the DOL to rescind its guidance, the DOL appears to be holding firm at this time.
Perhaps heeding the DOL’s warning, plan sponsors do not seem to be rushing in droves to add a cryptocurrency option to their plans. In the absence of tighter regulation and mitigation of the security and volatility issues associated with this product, plan sponsors that decide to allow participants to invest their plan accounts in Bitcoin or other cryptocurrency should be prepared to reconcile the concerns raised by the DOL guidance with their fiduciary duties, including those of prudence and loyalty. These decisions will be ripe for scrutiny from the DOL and could be a target for the next wave in 401(k) litigation.