The U.S. Department of Labor (DOL) has asked 401(k) investors to “exercise extreme caution” when dealing with cryptocurrencies and other digital assets, calling fraud, theft, and financial loss “significant risks.”
In a compliance report released Thursday, DOL issued a strong warning to employers looking to increase their exposure to 401(k) cryptocurrencies, noting that all significant cryptocurrencies in corporate-sponsored retirement accounts could attract legal attention.
401(k) is a retirement savings plan offered by most U.S. employers that offers tax credits and long-term financial insurance to those who subscribe.
With respect to the Investment Act 401(k), the Employee Retirement Security Act of 1974 (ERISA) does not define the asset classes that must be included in a 401(k). However, it directs trustees to “demonstrate the care, skill, caution and prudence of a prudent person” in making investment decisions “to reduce the risk of significant loss”.
ERISA also places a legal obligation on managers to constantly monitor all investments to minimize any losses. This means that highly volatile assets such as cryptocurrencies have not yet become increasingly opaque with respect to 401(k) investments.
DOL’s latest announcement comes as more financial services are starting to sell cryptocurrency as an investment option for 401(k) fixed retirement accounts, including ForUsAll Inc., which announced a strategic partnership with Coinbase last June.
In a DOL blog post accompanying the compliance report, EBSA Deputy Secretary Ali Khawar cautioned store managers, noting that “the retirement savings of American workers and their families represent years of hard work and sacrifice […] and must be carefully protected.” ”
Khawar continued that the Ministry of Labor is seriously concerned about long-term investment in any form of digital assets:
“However, at this early stage in the history of cryptocurrencies, [DOL] is seriously concerned about the decisions of the plan to expose participants to direct investments in cryptocurrencies or related products such as NFTs, coins and cryptocurrencies.
Related: Cryptocurrency Tax Benefits in 401(k) May Open Your Eyes
While President Joe Biden’s recent executive order on cryptocurrencies highlights the risks associated with investing in digital assets, regulatory clarity regarding cryptocurrencies and other digital assets has yet to be formulated. This has added to the confusion over what investors can and cannot do with their digital assets.