Labor Department Rescinds Guidance About Crypto and 401(k) Investment Menus

The Department of Labor’s Employee Benefits Security Administration has rescinded a 2022 compliance assistance release that directed fiduciaries to exercise “extreme care” before adding cryptocurrency options to the investment menus for 401(k) retirement plans.

The language in the 2022 guidance was not in line with the requirements of the Employee Retirement Income Security Act or with the department’s “historically neutral, principled-based approach to fiduciary investment decisions,” the Labor Department said in a Wednesday (May 28) press release.

By rescinding the guidance, the department reaffirms its neutral stance on plan fiduciaries’ inclusion of cryptocurrency in a plan’s investment menu, according to the release.

“The Biden administration’s department of labor made a choice to put their thumb on the scale,” U.S. Secretary of Labor Lori Chavez-DeRemer said in the release. “We’re rolling back this overreach and making it clear that investment decisions should be made by fiduciaries, not D.C. bureaucrats.”

The Biden administration’s Labor Department said in March 2022 that it was warning retirement plan fiduciaries to use caution before adding a cryptocurrency option to a 401(k) plan’s investment menu.

“At this early stage in the history of cryptocurrencies, the Department has serious concerns about the prudence of a fiduciary’s decision to expose a 401(k) plan’s participants to direct investments in cryptocurrencies, or other products whose value is tied to cryptocurrencies,” the department said in a March 10, 2022, briefing, PYMNTS reported at the time.

In a March 10, 2022, press release announcing the compliance assistance release, the Labor Department said that it cautioned plan fiduciaries to exercise “extreme care” before adding a crypto option and that the Employee Retirement Income Security Act requires plan fiduciaries to “adhere to the standards of professional care in considering investment options for participants in 401(k) plans.”

The Labor Department’s decision announced Wednesday is the latest of several agencies’ changes in policies regarding cryptocurrencies.

The Federal Deposit Insurance Corporation (FDIC) provided new guidance March 28 saying that FDIC-supervised institutions can engage in crypto-related activities without receiving prior FDIC approval, provided they adequately manage the associated risks.

On April 24, the FDIC and the Federal Reserve withdrew earlier warnings that cast a chill over banks’ involvement with cryptocurrencies.