The Department of Labor has issued compliance assistance release No. 2022-01 to warn 401(k) and other responsible plan fiduciaries about allowing participants to invest in either cryptocurrencies or products that are related to and derive their value from virtual currency. The guidance comes in response to President Joe Biden’s executive order that directed various federal agencies to study the risks and benefits of cryptocurrency in anticipation of releasing new cryptocurrency regulations.
The release warned that in the eyes of the Labor Department, cryptocurrency poses significant risks and challenges for plan participants, including the risk of fraud, theft and loss. The release is clear that plan fiduciaries who allow cryptocurrency investment options should expect to be subject to investigation and face questions about how those decisions could comply with their duties of prudence and loyalty.
We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the Department of Labor’s stance on cryptocurrency in retirement accounts.
Below is a summary of the debate that ensued between the two professors.
Bloink: I understand the Department of Labor’s concerns about whether cryptocurrency is an appropriate retirement plan investment option. Cryptocurrency is an extremely volatile and risky investment. I can’t see how any responsible plan fiduciary would be able to justify the risk, given the difficulties associated with inexperienced plan participants being able to properly evaluate the investment option and understand the risks.
Byrnes: Cryptocurrency is here to stay. Ignoring that does a disservice to clients who may be interested in cryptocurrency investments. Cryptocurrency investments can add diversification to any retirement portfolio and give clients potentially valuable protection from an extreme market downturn like the one most of us experienced only a few short years ago.