The recent decision by the US Department of Labor to rescind a 2022 compliance release regarding crypto investment options in 401(k) retirement plans has sparked significant interest and discussion within the financial industry. The move, announced on May 28, signifies a shift in the Department’s approach to regulating digital assets within retirement accounts.
The now-withdrawn “Compliance Assistance Release No. 2022-01” had previously advised fiduciaries to exercise caution when considering including cryptocurrencies in retirement plan investment menus. However, the Department has now reverted to a neutral stance that aligns with the statutory language of the Employee Retirement Income Security Act (ERISA), which governs private-sector retirement plans.
The Employee Benefits Security Administration acknowledged that the “extreme care” standard introduced in 2022 lacked a statutory basis and departed from the Department’s previous principles-based approach. US Secretary of Labor Lori Chavez-DeRemer emphasized the importance of allowing fiduciaries, rather than government officials, to make investment decisions for retirement plans.
While the Department’s decision does not explicitly endorse or disapprove of crypto as retirement plan assets, it underscores the principle that investment discretion should rest with fiduciaries in accordance with ERISA. Fiduciaries are still required to act in the best interest of plan participants but must do so within a consistent evaluative framework, rather than adhering to asset-specific cautionary directives.
The 2022 compliance release had warned against adding crypto investment options due to factors such as volatility, custodial complexities, and regulatory uncertainty. Critics argued that this approach exceeded the fiduciary duty standard outlined in ERISA, which emphasizes acting with care, skill, prudence, and diligence.
The Department’s revised guidance reaffirms the importance of context-specific investment decisions based on a prudent review of all relevant factors. By rescinding Compliance Release 2022-01, the Department aims to restore a uniform application of fiduciary principles under ERISA, allowing retirement plan administrators to assess crypto investment options on a case-by-case basis in compliance with existing legal obligations.
Overall, the Department’s decision marks a significant development in the regulation of crypto assets within retirement plans, emphasizing the importance of fiduciary discretion and adherence to ERISA standards. This shift is likely to have far-reaching implications for the inclusion of digital assets in 401(k) plans and underscores the need for careful consideration and evaluation by plan administrators.