US Labor Department Revises Stance on Crypto in Retirement Plans

By: Isha Das

The US Department of Labor has announced a significant policy shift by rescinding a 2022 guidance that previously advised fiduciaries against offering cryptocurrency investment options in 401(k) retirement plans. This decision, disclosed on May 28, reiterates that the investment discretion should reside with fiduciaries, echoing a more traditional approach as dictated by the Employee Retirement Income Security Act (ERISA). By retracting the earlier compliance release, fiduciaries regain the ability to consider digital assets for retirement plans without the heightened scrutiny that was formerly recommended.

The 2022 guidance had asked fiduciaries to exercise 'extreme caution' due to concerns over crypto's volatility, custodial challenges, and regulatory uncertainties. However, this approach was criticized for exceeding standard fiduciary duty and diverging from the principles-based stance typically maintained by the Department of Labor. Secretary Lori Chavez-DeRemer's statement underscores the importance of fiduciaries making investment decisions free from bureaucratic influence, aligning with ERISA’s statutory framework which emphasizes prudence under prevailing circumstances.

The Labor Department's compliance notice in March 2022 marked crypto as a risky asset class, urging heightened scrutiny that called for risk assessments extending beyond ordinary fiduciary evaluation criteria of risk, cost, and suitability. This approach deviated from the historical neutrality and the principles-based evaluation of investment options by fiduciaries. The decision to roll back the Biden-era guidance thus reinstates a balanced method where digital assets like cryptocurrencies are assessed for retirement plans in the same manner as other investment classes, without unwarranted biases.

By eliminating Compliance Release 2022-01, the Department revives a uniform application of fiduciary principles under ERISA, meaning that now, retirement plan administrators have the discretion to assess the inclusion of cryptocurrency in their plans on a context-specific basis. This new development signals a progressive stance that could allow more asset managers to consider including digital assets in investment plans while ensuring they adhere to the same stringent review applicable to other asset classes.