In a statement on Friday, the United States Department of Labor (DOL) cautioned employers and providers or retirement plans regarding crypto. DOL warned them to be careful before considering including cryptocurrencies as an investment option.
The labor department made the remarks to preserve American employees’ retirement funds. However, according to DOL, cryptocurrencies like Bitcoin and other digital assets like non-fungible tokens offer major obstacles to 401(k) participants. The concerns include financial loss, theft, and fraud.
On the other hand, financial services businesses are focusing on crypto plans. In addition, they pitch crypto investments to 401(k) plans as a retirement-plan alternative.
The labor department made a public statement. Accordingly, adding crypto investments to 401(k) plans might put employers in violation of their legal responsibilities toward plan members. Such calls usually happens because of the uncertainty around the market at this time. They don’t necessarily mean that crypto retirement plans are wrong, though.
Concerns for Crypto Investments
The US Department of Labor has major concerns related to direct crypto investments. Ali Khawar, acting assistant secretary at the Employee Benefits Security Administration, noted some factors in the development of the crypto area. The main concerns are related to direct investments in cryptocurrencies or similar goods such as NFTs and other crypto-assets.
DOL began working on crypto recommendations in September of last year. DOL reveals that it has joined other US government agencies with its most recent decision. These agencies have lately emphasized the associated risks of using cryptocurrency. Additionally, regulators at the US Securities and Exchange Commission (SEC) are concentrating their regulatory efforts on investor risks associated with cryptocurrencies.
If you want to invest in cryptocurrencies in your 401(k) plan, the law does not say you can not. However, many labor lawsuits have questioned the plan’s investment lineup structure. This is leading to a few plan sponsors preferring safer and less volatile investments.
To avoid being sued, retirement plan providers are urged to choose stable and transparent investments like index funds. In addition, some recently filed lawsuits explore how the Employee Retirement Income Security Act of 1974 (ERISA) regulates different types of investments like private equity or hedge funds.
It seems there may still be a long way to go before investing in cryptocurrency and crypto funds. This is because these crypto funds are not as stable or transparent as mutual funds. As a result, an ERISA plan’s investment universe may still be far away.