EBSA’s announcement today that it has rescinded its 2022 guidance warning of dangers of including cryptocurrency in 401(k)s drew a quick rebuke from Better Markets, a non-profit, non-partisan, and independent organization focused on promoting the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans.
Stephen Hall, Legal Director and Securities Specialist of Better Markets, issued the following statement in response to today’s announcement:
“Today is another flagrant example of the Trump Administration putting crypto profits ahead of the economic stability and security of Americans. The Department of Labor (DOL), in rescinding 2022 guidance warning of the very real risks of dumping crypto into tax-exempt retirement plans like 401(k)s, has signaled that it’s open season for the lawless crypto industry to push their volatile assets into the preferred investment vehicle of tens of millions of workers.
“The previous DOL guidance, issued in March of 2022, likely saved millions of Americans from suffering grievous losses in their retirement accounts when the industry crashed later that year during the Crypto Winter. During that time, the collapse of Do Kwon’s scam stablecoin project Terra Luna, and the bankruptcies of FTX, Celsius, Voyager Digital and BlockFi created a domino effect, sending crypto prices crashing and resulting in billions of dollars of customer funds frozen as courts sorted through the wreckage.
“The Department of Labor, in rescinding 2022 guidance warning of the very real risks of dumping crypto into tax-exempt retirement plans like 401(k)s, has signaled that it’s open season for the lawless crypto industry to push their volatile assets into the preferred investment vehicle of tens of millions of workers.”
Stephen Hall, Better Markets
“Unfortunately, the regulatory and enforcement framework for crypto has significantly deteriorated since the beginning of the Trump Administration, with the Securities and Exchange Commission and Department of Justice signaling a capitulation in favor of the industry. These actions pose extreme danger to investors and now, retirees.
“In addition to the massive volatility, crypto suffers from a real lack of transparency and oversight, including through its prolific use in criminal enterprises like ransomware attacks, sanctions violations, and schemes that victimize older Americans. Crypto likewise has demonstrated a heightened risk of fraud, hacks and loss, with a major crypto exchange just last week announcing theft of investor assets up to $400 million.
“Pension plan managers’ fiduciary duties to put their clients’ best interests first and of prudence, due diligence, and loyalty are not changed by this unwise, unwarranted, and dangerous action by the DOL. The mere fact this DOL took this action will not insulate pension plan managers from liability for breaching those duties. Given that, they would be well-advised to continue to exercise the ‘extreme care’ recommended in the now revoked 2022 guidance before putting crypto investment options into the retirement plans of tens of millions of American employees.”
Back to ‘neutral approach’
The 2022 guidance directed plan fiduciaries to exercise “extreme care” before adding cryptocurrency to investment menus. In a press release today, EBSA said this language deviated from the requirements of the Employee Retirement Income Security Act and marked a departure from the department’s historically neutral, principled-based approach to fiduciary investment decisions.
“The Biden administration’s department of labor made a choice to put their thumb on the scale,” said U.S. Secretary of Labor Lori Chavez-DeRemer “We’re rolling back this overreach and making it clear that investment decisions should be made by fiduciaries, not DC bureaucrats.”
Although the rescission eliminates earlier cautionary language, it should be noted that fiduciaries are still bound by ERISA to make prudent decisions that serve the best interests of plan participants. Despite the policy shift, many in the retirement industry remain concerned about the ongoing risks tied to cryptocurrency investments, including market volatility and regulatory uncertainty.
Prior to 2022, the DOL took a “neutral approach” to particular investment types and strategies. The latest withdrawal of the 2022 guidance makes a return to the department’s historical approach of neither endorsing nor disapproving of any fiduciaries planning to include crypto assets in a 401(k) plan.
SEE ALSO:
• EBSA Rescinds Guidance Warning Against Cryptocurrency in 401(k)s
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.