U.S. Department of Labor pulls back on crypto warning for 401(k) plans

The U.S. Department of Labor has officially walked back a 2022 warning that urged retirement plan managers to be extremely cautious when considering cryptocurrency as an investment option in 401(k) plans.

The original guidance, issued during the early days of crypto’s rise in mainstream finance, flagged serious concerns about the risks involved and signaled that plans offering crypto could be subject to investigations.

In a statement released Wednesday morning, the Employee Benefits Security Administration said the department is revoking the 2022 compliance bulletin. The department cited it strayed from what they describe as a “neutral, principles-based approach” under the Employee Retirement Income Security Act (ERISA). 

The Employee Retirement Income Security Act, or ERISA, is a federal law passed in 1974 to protect workers who participate in private-sector benefit plans like pensions and health insurance.

It lays out clear rules for how these plans should be managed, requiring those in charge to act in the best interest of employees, provide regular and transparent updates, and keep the plans financially stable.

The department clarified that it is not taking a position for or against crypto in retirement plans. It’s simply stepping back and leaving the decision to the fiduciaries in charge.

Secretary of Labor Lori Chavez-DeRemer made it clear that this move is about rolling back what she called a Washington overreach. “The Biden administration’s Department of Labor made a choice to put their thumb on the scale,” she said. “We’re rolling back this overreach and making it clear that investment decisions should be made by fiduciaries, not D.C. bureaucrats.”

The now-rescinded guidance had been in place since March 2022. It warned fiduciaries to expect questions and possible investigations if they chose to include crypto among investment options. 

At the time, EBSA’s acting head Ali Khawar said crypto’s volatile and relatively young market required gross carefulness before giving 401(k) participants direct access to those kinds of investments.

Ali’s statement spurred a response from lawmakers such as Sen. Tommy Tuberville, who introduced the Financial Freedom Act just two months later. The bill aimed to protect individuals’ rights to invest their 401(k) savings as they choose, including in cryptocurrency. 

It also sought to block the Department of Labor from issuing any rule or guidance limiting what people can do through a brokerage window. Tuberville and Rep. Byron Donalds brought the bill back again on April 1 of this year.

While the Department of Labor is backing away from crypto-specific warnings, legal and ethical questions around retirement fund management are still making waves. A new lawsuit has surfaced, accusing a company of improperly benefiting by using retirement plan assets in place of its own future contributions.