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Wendy Von Wald. (Photo: Travelers)

Retirement Planning > Saving for Retirement > 401(k) Plans

Plan Sponsors Should 'Exercise Caution' Before Adding Crypto: Wendy Von Wald

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What You Need to Know

  • Even as the DOL expressed concerns about cryptocurrencies, Fidelity said in the spring that it would let retirement plans offer Bitcoin.
  • Plan fiduciaries are encouraged to exercise caution as they advise clients on this evolving investment option.
  • Von Wald says employers should pay attention to the Labor guidance.

Wendy Von Wald would like to see retirement plan sponsors think hard and talk to their lawyers before trying to add cryptocurrency options to the investment menu.

Von Wald is the fiduciary liability product manager at Travelers — a New York-based insurer that protects retirement plan sponsors and other plan fiduciaries against the risk that angry participants will sue about asset growth problems.

Fidelity suggested in April that it wanted to let plan sponsors offer Bitcoin through its core 401(k) plan lineup.

Von Wald has been in charge of fiduciary products at Travelers since 2016. Before that, she spent 16 years working as a fiduciary liability product specialist and product manager, first at Aon and then at Chubb.

She has a bachelor’s degree from Denison University and a law degree from the University of Denver.

Here are some things Von Wald said about cryptocurrency-based retirement plan investment options in a recent email interview.

The interview has been condensed and edited.

THINKADVISOR: What’s wrong with putting cryptocurrency in a 401(k) plan?

WENDY VON WALD: A 401(k) plan is intended to provide participants with income once they retire. It isn’t designed to include investments that could be viewed by some as unsafe.

Because of the uncertainty and volatility that comes with cryptocurrency, investing in it comes with significant potential risks, including theft, fraud and loss.

For plan providers and fiduciaries, this is relatively new territory, and they’ll want to give strong analysis and consideration before deciding to make crypto a 401(k) investment option.

Is this a problem that’s come up in the real world?

This space is constantly evolving, so navigating the issue is definitely unusual.

In March, the Department of Labor issued a strongly worded warning to 401(k) plan fiduciaries advising that they “exercise extreme care” before considering adding cryptocurrencies to a retirement plan’s investment menu.

I think this was put out as a measure to reduce the commonality of this problem and mitigate the risk of these problems existing in the first place.

If plan fiduciaries continue to exercise caution in their offerings and recommendations, the hope is that this doesn’t become a big, common problem.

How does offering a crypto-linked investment option compare with offering another kind of unusual investment option, such as an investment instrument tied to the value of an art collection?

Any nontraditional investment option for a 401(k) plan will likely generate more scrutiny and discussion than something that is offered by a majority of plans, such as stock mutual funds and bond mutual funds.

Anything that could be perceived or is considered to come with higher risk or volatility will face challenges before being offered by a plan. Cryptocurrency is no different, which is why it has been added to the ongoing conversation.

Can a 401(k) plan offer participants access to cryptocurrency through a self-directed brokerage window option?

The U.S. Department of Labor expects it will have a program investigating plans that offer cryptocurrency investments to 401(k) plans either as direct investment options or through a brokerage window.

These investigations can result in enforcement activity on the part of the DOL.

What, if any, paths could regulators and the crypto world take that would make it easier for sponsors to offer cryptocurrency-linked retirement plan investment options?

We expect that regulators will continue to ensure plan sponsors and fiduciaries continue to act in the best interest of plan participants.

Can a 401(k) plan sponsor jump in and offer a cryptocurrency-linked investment option now, in spite of the DOL warning?

A plan sponsor could choose to offer crypto and accept the compliance and private litigation risk carried with that decision.

However, fiduciaries have an obligation to act in the best interest of plan participants, regardless of their or the participants’ interest in investing in cryptocurrencies.

Even when a plan participant wants to invest in something, a plan provider might have to say it’s not appropriate because that investment is not prudent under the fiduciary standards of conduct required by the Employment Retirement Income Security Act of 1974 (ERISA).

While it’s not impossible, the risk of perceived breach of fiduciary duty should bring more caution to these decisions.

This isn’t to say that plan advisors can’t invest in cryptocurrency, but including it in a 401(k) plan comes with a heightened risk of regulatory and private activity.

What do you most want to say to retirement plan sponsors and advisors about fiduciary responsibility?

It’s important for fiduciaries and plan providers to adhere to the requirements set forth by ERISA.

It protects retirement savings by ensuring that fiduciaries act with prudence and in the best interest of plan participants.

Failure to act in this manner can bring a costly lawsuit, which could trigger fiduciary liability insurance if a policy has been secured.

Any number of actions — not just making a decision to offer cryptocurrency in a 401(k) plan — can lead to a lawsuit.

If a fiduciary has a question regarding an action being taken or considered, reach out to a legal specialist who can provide guidance.

It could be a valuable conversation.

Wendy Von Wald. (Photo: Travelers)


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