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With âsignificant risks,â cryptocurrencies have attracted the attention of U.S. legislators looking to decrease the exposure to digital assets in 401(k) retirement accounts.
The United States Department of Labor (DOL) has told 401(k) investors to âexercise extreme careâ when dealing with cryptocurrencies and other digital assets citing fraud, theft and financial loss as âsignificant risks.âÂ
In a compliance report released on Thursday, the DOL offered a stark warning to employers that seek to increase their 401(k) exposure to cryptocurrencies, stating that any significant crypto investments within company-sponsored retirement accounts may attract legal attention.
A 401(k) is a retirement savings plan offered by most American employers that extend tax advantages and long-term financial security to those that opt-in.
Regarding the legislation surrounding 401(k) investments, the Employee Retirement Income Security Act of 1974 (ERISA) does not specifically detail which asset classes must be included in a 401(k). However, it does instruct fiduciaries to âshow the care, skill, prudence, and diligence that a prudent person would exerciseâ when making investment choices âin order to minimize the risk of large losses.â
ERISA also extends a legal obligation to fiduciaries to monitor all investments on an ongoing basis in order to further mitigate any losses. This means that extremely volatile assets such as cryptocurrencies have yet to prove to be increasingly ambiguous in regards to 401(k) investments.
The recent DOL announcement comes as an increasing number of financial services begin to market crypto as an investment choice for 401(k) fixed retirement accounts including ForUsAll Inc. which announced a strategic partnership with Coinbase in June last year.
In a DOL blog post that accompanied the compliance report, Employee Benefits Security Administration (EBSA) assistant secretary Ali Khawar proffered caution to fiduciaries, stating that âthe retirement savings of Americaâs workers and their families represent years of hard work and sacrifice [âŠ] and must be carefully protected.â
Khawar continued to say that the DOL had significant concerns for long-term investments in any form of digital asset:
âAt this early stage in the history of cryptocurrencies, however, the [DOL] has serious concerns about plansâ decisions to expose participants to direct investments in cryptocurrencies or related products, such as NFTs, coins and crypto assetsâ
Related: The tax advantages of crypto in a 401(k) can be eye opening
While President Joe Bidenâs recent executive order on cryptocurrencies highlighted the risks associated with investments in digital assets, actual regulatory clarity on cryptocurrencies and other digital assets has yet to be formulated. This has exacerbated confusion about what investors can and canât do with their digital assets.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.