Labor Department Has ‘Serious Concerns’ About Cryptos in Retirement Plans
The Labor Department said it was cautioning plan fiduciaries “to exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu for plan participants,” as it has “serious concerns” about investments in cryptos and NFTs.
See: Biden To Sign Executive Order on Cryptos, Cryptos Take Off Following Announcement
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“In recent months, some financial services firms have begun marketing investments in cryptocurrencies as potential investment options for participants in 401(k)s. At this early stage in the history of cryptocurrencies, however, the U.S. Department of Labor has serious concerns about plans’ decisions to expose participants to direct investments in cryptocurrencies or related products, such as NFTs, coins, and crypto assets,” the Department said in a blog post on its website.
In turn, the Department has issued a compliance assistance release for plan fiduciaries focused on 401(k) plan investments in cryptos which advises them to exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu for plan participants.
The Labor Department’s warning comes on the heels of President Joe Biden’s executive order on digital assets, signed March 9. The order has been widely lauded in the crypto industry — many financial experts see this unified approach to crypto regulation as a long-awaited recognition and advancement of the space, as GOBankingRates previously reported.
The Department said that the order highlights the significant financial risks digital assets can pose to consumers, investors and businesses in the absence of appropriate protections.
“Cryptocurrency has gained mainstream popularity and notoriety, but there is still great uncertainty about how the market will develop, and little agreement on investing fundamentals relating to cryptocurrency,” it said in the post.
According to the Labor Department, cryptos can present serious risks to retirement savings, including valuation concerns, as “scammers have used misleading information to inflate the price of cryptocurrencies, and then sold their own holdings for a profit before the value of the currency drops.”
Other concerns include obstacles to making informed decisions, the notion that it “can be very hard for ordinary investors to separate fact from hype,” prices that can change quickly and dramatically, which can “leave participants vulnerable to significant losses,” and an evolving regulatory landscape, according to the post.
“Laws and rules are swiftly evolving. For example, the president’s recent executive order directs federal agencies to study risks and policy approaches to digital assets, including cryptocurrency. Changes in the United States and globally may impact existing regulatory frameworks,” according to the post.
See: US Treasury Launches Consumer Education Effort on Digital Assets as Crypto Goes Mainstream
Find: How Crypto Assets Are Regulated — and How They Are Not
Based on these and other concerns, the Department said it expects to conduct an investigative program aimed at plans that offer participant investments in cryptocurrencies and related products, and to take appropriate action to protect the interests of plan participants and beneficiaries with respect to these investments.
“The plan fiduciaries responsible for overseeing such investment options or allowing such investments through brokerage windows should expect to be questioned about how they can square their actions with their duties of prudence and loyalty in light of the risks described above,” it said in the compliance assistance release.
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