U.S. Department of Labor Warns of Crypto Risks in Retirement Planning

The U.S. Department of Labor (DOL) is telling 401(k) investors to use "extreme caution" when dealing with cryptocurrencies and other digital assets, calling fraud, theft and financial loss "significant risks."

In a compliance report published Thursday, the DOL issued a stark warning to employers seeking to increase their 401(k) exposure to cryptocurrencies, saying any significant crypto investments in company-sponsored retirement accounts could raise legal concerns.

A 401(k) is a retirement savings plan offered by most U.S. employers that offers tax advantages and long-term financial security for employers who choose to join.

Regarding the legislation surrounding 401(k) investments, the Employee Retirement Income Security Act (ERISA) of 1974 does not specify which asset classes must be included in a 401(k). However, it does instruct trustees to "exercise care, skill, prudence and diligence" in making investment choices in order to "minimize the risk of substantial loss".

ERISA also extends a legal obligation to the trustee to continuously monitor all investments to further mitigate any losses. This means that highly volatile assets like cryptocurrencies have yet to prove increasingly murky when it comes to 401(k) investing.

The recent DOL announcement comes as a growing number of financial services begin offering cryptocurrencies as an investment option in 401(k) defined retirement accounts, including ForUsAll Inc., which announced a strategic partnership with Coinbase last June .

In a DOL blog post accompanying the compliance report, Employee Benefits Security Administration (EBSA) Assistant Secretary Ali Khawar warned trustees that “retirement savings for American workers and their families represent years of hard work and sacrifice [ ...] must be carefully guarded.”

Khawar went on to say that there are significant concerns about DOL’s long-term investment in any form of digital asset:

“However, at this early stage in the history of cryptocurrencies, the [DOL] has serious concerns about the decision to plan for participants to invest directly in cryptocurrencies or related products such as NFTs, tokens, and cryptoassets”

While President Joe Biden’s recent executive order on cryptocurrencies highlighted the risks associated with investing in digital assets, actual regulatory clarity on cryptocurrencies and other digital assets has yet to be enacted. This exacerbates investor confusion about what digital assets can and cannot do.