Labor Department Lifts 401k Crypto Restrictions

The US Labor Department has officially rescinded guidance issued during the Biden administration that limited the inclusion of cryptocurrency in 401(k) retirement plans. On May 28, the Labor Department revoked a 2022 guidance that had urged fiduciaries to be “extremely cautious” when considering cryptocurrency for 401(k) retirement plans. The move could give asset managers more flexibility to include digital assets in retirement investment options.

The government agency removed the guidance asserting that it represented a departure from the department’s “historically neutral, principled-based approach to fiduciary investment decisions.” The Labor Department under Biden criticized the practice of marketing cryptocurrencies to 401(k) participants. At the time, the agency claimed cryptocurrencies posed “significant risks and challenges” to participants’ retirement accounts due to their “speculative and volatile” nature and “valuation concerns,” among other reasons.

Secretary of Labor Lori Chavez-DeRemer stated, “We’re rolling back this overreach and making it clear that investment decisions should be made by fiduciaries, not D.C. bureaucrats.” This shift in policy aligns with the broader efforts of the Trump administration to foster a more favorable environment for cryptocurrency investments. The American Banking Association (ABA) had previously criticized the 2022 compliance release, claiming that it did not make the guidance available for public comment and review prior to issuance.

The rescission of the 2022 guidance is part of a broader effort by the Trump administration to promote a more favorable environment for cryptocurrency investments. This move is expected to encourage more plan sponsors to consider cryptocurrency as a viable investment option within their 401(k) plans. However, it is important to note that the decision does not eliminate the fiduciary duty of plan sponsors to act in the best interests of plan participants. Fiduciaries must still conduct thorough due diligence and ensure that any cryptocurrency investments are prudent and appropriate for the plan's participants.

The change in guidance is likely to have a significant impact on the retirement savings landscape. With the removal of the "extreme care" requirement, more plan sponsors may feel comfortable including cryptocurrency in their investment menus. This could lead to increased diversification and potentially higher returns for participants, although it also comes with the inherent risks associated with cryptocurrency investments. The Department of Labor's neutral stance allows fiduciaries to make informed decisions based on the specific needs and risk tolerance of their plan participants, rather than being constrained by overly cautious guidelines.