The Trump administration has rescinded guidance from the Biden era that discouraged employers from adding cryptocurrency and related digital assets to 401(k) plans. The Labor Department withdrew the guidance, which aimed to discourage investment in digital assets due to risks like fraud, theft, and loss. The agency stated that the “extreme care” standard previously suggested by the Biden administration is not found in the Employee Retirement Income Security Act (ERISA).
The department emphasized that it neither endorses nor disapproves of employers who decide to add crypto to their 401(k) investment list. This reasoning extends to a wide range of digital assets, including tokens, coins, crypto assets, and derivatives. ERISA bestows a fiduciary duty on employers and company officials overseeing their 401(k) investments, meaning they must act in the best interests of the investors.
This duty could deter employers from rushing to offer crypto, given the potential legal ramifications if crypto investments fail.
Labor Department shift on crypto guidance
Philip Chao, a certified financial planner and retirement plan investment consultant, said, “That duty still exists — meaning it’s not a given employers will rush to offer crypto.
Doing so might risk being sued by 401(k) investors in the future if their crypto investment goes belly up.”
Reactions to the move have been mixed. Knut Rostad, president of the Institute for the Fiduciary Standard, criticized the decision, calling it a “big mistake.” He argued that crypto generally doesn’t belong in a 401(k) and suggested that rescinding the guidance could endanger employers and investors by eliminating caution. Stephen Hall, legal director and securities specialist at Better Markets, believes the Biden-era guidance likely saved millions of investors from significant losses when crypto prices plunged in late 2022.
During that period, the collapse of various crypto projects and platforms caused a significant decline in crypto prices and locked up billions in customer funds. The policy shift reflects a broader, more neutral approach to digital assets in retirement plans but raises concerns about the prudence and safety of including such volatile investments in 401(k) plans. Employers and investors are advised to carefully consider the risks involved.
