Want a Crypto 401(k)? The DOL Isn’t Standing in the Way Anymore

The Department of Labor is getting out of crypto’s way in 401(k) plans.

The agency on Wednesday changed its tune about bitcoin and any other digital asset being included in employer-sponsored retirement plans. It rescinded guidance from 2022 that directed plan fiduciaries to use “extreme care” when considering crypto. While that didn’t forbid digital assets in 401(k)s, it didn’t exactly help the cause. Now, the DOL says it is taking a neutral stance on crypto. The Employee Retirement Income Security Act “does not prohibit any types of investments,” said Fred Reish, partner at law firm Faegre Drinker Biddle & Reath. “The prior guidance didn’t say that crypto investments were prohibited, but conveyed that it was dangerous for fiduciaries to allow crypto investments in a plan’s core lineup or even in a brokerage window. That had a chilling effect on plan sponsors.”

Who Wants Some?

Options for including crypto to any extent in 401(k)s are thin. That may change, but plan sponsors are often hesitant to do anything with their investment menus that makes them stand out in any way. And that’s not just for fear of regulators — there has been no shortage of class-action lawsuits involving 401(k)s and their investments. “The majority of plan sponsors would never consider adding crypto into a retirement account anyway. That’s the good news,” said Knut Rostad, president of the Institute for the Fiduciary Standard. “The bad news is that this has been a clear message that the proponents can use for pushing crypto into these accounts in situations where the advisor is uncertain about whether he or she should do it. It’s exchanging a yellow caution light, which we had before, with a green.”

There are a few existing options for retirement accounts:

• ForUsAll, a consultant and record keeper, added a 401(k) feature in 2021 that allows workers to allocate up to 5% of assets and contributions to various digital assets through Coinbase Institutional. That firm did not immediately respond to a request for comment about the uptake within 401(k)s.
• Fidelity for several years has offered workers within its own company plan access to a bitcoin fund. The company, which this year rolled out crypto investing for IRAs, also did not immediately provide comments.

A Case for Advisors. As popular as crypto has become, it’s likely that many people on 401(k) investment committees haven’t held or invested in it. That can be a problem, because the law requires fiduciaries to be competent and knowledgeable about the investments they select, Reish said. “However, that ‘deficiency’ can be cured by the use of a knowledgeable consultant or adviser,” he said. Even so, any plans that opt for digital assets may limit the exposure to an allocation product or service, such as a target date fund or managed account, he said. “On the other hand, plan fiduciaries may allow crypto investments to be included in their plans’ brokerage windows.”