A new report by the U.S. Government Accountability Office (GAO) analyzes the usage of cryptocurrencies in 401(k) plans and how federal regulators can protect retirement savings from the digital asset’s historic volatility.
Currently, crypto usage in retirement plans remains low, yet has been cautioned by regulators who say it can come with “considerably high risk.” The GAO’s latest report, “401(k) Plans: Industry Data Show Low Participant Use of Crypto Assets Although DOL’s Data Limitations Persist,” shows that just less than 1% of defined contribution (DC) plans invest in crypto.
Still, those who invest greater portions of their savings to the digital asset could experience higher volatility, notes GAO’s report. “GAO’s simulation found a high allocation [20 percent] to bitcoin, the crypto asset with the longest price history, can lead to higher volatility than smaller allocations [1 and 5 percent],” the report found. “Further, GAO’s interviews with researchers and firms that develop crypto asset investment options indicate there is no standard approach for projecting the potential future returns of crypto assets.”
Likewise, a separate report from GAO touches on the lack of federal monitoring with crypto in 401(k) accounts. A post on the GAO’s WatchBlog, a blog format that allows the agency to provide more context on its findings, finds that fiduciary data given to the Department of Labor (DOL) regularly muddles reporting on crypto assets.
“Labor does not require fiduciaries to provide detailed data on plans with fewer than 100 participants—meaning some investors are left out of the picture. Even plans with more than 100 participants aggregate some of the investment data they provide Labor—obscuring investments in crypto assets,” the GAO writes. “As a result, Labor can’t measure the prevalence of crypto investments in 401(k) plans or identify plans for investigation to protect investors if needed.”
This lack of data, along with growing uncertainty tied to the investment options, limits federal oversight and management of the digital assets.
“The crypto market, since it began emerging as a 401(k)-investment option for some retirees and investment firms in 2022, has not been fully subjected to proper oversight and regulation,” said Rep. Richard Neal (D-MA), a Ranking Member of the House Committee on Ways and Means, in response to the report. “As a result, as this report outlines, it has brought uniquely high risk to retirees. Americans must be confident that their investments are secure, and do not face unnecessarily high volatility, cybersecurity, and theft risk.”
Furthermore, while the DOL has cautioned fiduciaries to exercise extreme caution when considering cryptocurrencies in retirement plans, Labor officials told the GAO that it does not require fiduciaries to select and monitor all investment options in accordance with ERISA, including investments through self-directed brokerage windows. As a result, participants who invest outside their plans’ options may be held responsible for monitoring their crypto investments.
While the DOL has taken action to improve data collection, proposed legislation that would designate a federal regulator to oversee crypto assets, or recommend federal agencies like the Federal Reserve to identify risks posed by crypto assets, have not passed.
“Such oversight could better protect investors from fraud and market manipulation and promote integrity,” reported the GAO. “Legislation aimed at closing regulatory gaps was introduced in the 118th Congress. But none of the bills have become law.”
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