Can’t Touch This…DOL Discourages Cryptocurrency Investment Projects – JD Supra

Can’t Touch This…DOL Discourages Cryptocurrency Investment Projects – JD Supra

Among the many phrases of ERISA, one that is familiar to investment trustees is the requirement to select investments with the care, skill, prudence, and diligence that a prudent person familiar with these matters would use. Recently, the Department of Labor (DOL) issued guidance on how this standard of care applies to trustees who offer cryptocurrency investment alternatives to participants.
In Compliance Assistance Release 2022-01, the DOL reminds Trustees of their important role in selecting investments for Participant Management. Plan trustees must evaluate each investment option offered to members to ensure that they are prudent. Failure to withdraw an imprudent investment is a breach of duty.
In the statement, the DOL states that it has serious concerns about the caution of cryptocurrency investments as an option for participant management. The DOL cites the following reasons why these types of investments pose significant risks to participants: They are highly speculative and subject to extreme volatility; They are difficult to evaluate and to determine relative facts; They are also difficult to assess adequately; They are not held in traditional trust or custody accounts, which makes record keeping difficult; and The regulatory environment is new and evolving.
Members rely on plan trustees to make informed decisions. By offering cryptocurrency investment options within a 401(k) plan, participants can assume that such investments are reasonable and safe. The reality is that these volatile investments may not be suitable for retirement savings at all.
If your 401(k) plan already offers cryptocurrency as an investment option, you better line up your fiduciary ducks. The DOL says it’s “hammer time!” They warned plan trustees that the office of the Employee Benefits Security Administration will conduct a program of investigation targeting plans offering cryptocurrency as an investment option and take action to protect participants. Plan trustees will need to be able to demonstrate the decision-making process that led them to believe that cryptocurrency as an investment option meets the standards of fairness and prudence.

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