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Cryptocurrency is becoming more popular, so it is natural that you or your participants may be wanting to add a cryptocurrency investment option to your retirement plan.  But can you include a cryptocurrency option without violating your fiduciary duties? The DOL didn’t foreclose the possibility but has its doubts.

The Department of Labor recently issued Compliance Assistance Release No. 2022-01 expressing skepticism about whether cryptocurrency investment options should be available in retirement plans. The release advises plan fiduciaries to approach decisions about adding cryptocurrency options with tremendous caution and notes that DOL has “serious concerns” about plans providing such investment options to plan participants.

The DOL first notes that plan fiduciaries may not include an imprudent investment option and simply rely on plan participants to discern and select which options are prudent—rather plan fiduciaries must ensure that all plan investment options are prudent. The DOL then takes the position that cryptocurrency investments (whether directly invested or indirectly invested in products whose value is linked to cryptocurrencies) present the following significant risks to the plan:

  1. Speculative and Volatile: Cryptocurrencies are volatile investments, and the SEC has described cryptocurrency investments as “highly speculative.”
  2. Challenge for Plan Participants to Make Informed Investment Decisions: Because of the unique nature of cryptocurrencies, it can be extremely difficult to measure value and evaluate risk. Adding cryptocurrencies to a plan’s investment menu may be seen as a tacit endorsement—”that knowledgeable investment experts have approved the cryptocurrency option as a prudent option for plan participants.”
  3. Custodial and Recordkeeping Concerns: Cryptocurrency access and management can present new challenges—methods of “holding” an investment differ here from more traditional retirement assets, making recordkeeping (and even proof of ownership) more difficult to maintain.
  4. Valuation Concerns: Valuation of cryptocurrencies is often difficult and variable.
  5. Evolving Regulatory Environment: Cryptocurrencies are more likely to be unregulated and some have been used in illegal activity, which can potentially widen the scope of liability.

Finally, the DOL concludes by saying that plan fiduciaries who offer cryptocurrency investment options (including through brokerage windows) should expect to be questioned on how the fiduciary determined the investment was prudent and in the best interests of participants and beneficiaries in light of the risks identified above. An ominous warning, for sure.

Thus, while the DOL did not outright prohibit cryptocurrency investments if your plan offers cryptocurrency investment options (even if only through brokerage windows), you may want to perform additional analysis and carefully document that decision, specifically addressing and documenting an analysis of the risks identified above.

Poyner Spruill employee benefits lawyers can guide you in the fiduciary process and help document fiduciary decisions.

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