DOL Issues Compliance Release on Cryptocurrencies

The Department of Labor (DOL) has issued Compliance Assistance Release 2022-01 pertaining to the use of cryptocurrencies as plan investments in 401(k) plans. In it, the DOL cautions fiduciaries to exercise extreme care before considering the addition of cryptocurrency options in a plan’s investment menu and elaborates that the failure to remove an imprudent investment option from a menu of options is a breach of fiduciary duty.

The DOL expresses concerns about significant risks and challenges related to fraud, theft, and loss due the following factors

  • Speculative and volatile investments due to early stage of development
  • Ability for participants to make informed investment decisions due to the unique nature of cryptocurrencies and lack of investor knowledge
  • Custodial and recordkeeping concerns related to the asset not being held in a trust or custodial account but rather, stored as “lines of computer code in a digital wallet”
  • Valuation concerns with reliability and accuracy, citing disagreements by experts
  • Evolving regulatory environment that could result in unlawful transactions or inadequate disclosures

The DOL intends to conduct an investigative program aimed at plans that offer participant investments in cryptocurrencies and related products—including those within brokerage windows and take “appropriate action” to protect the interests of plan participants and beneficiaries.