Retirement plan sponsors have traditionally approached cryptocurrencies with caution, heeding federal warnings to exercise “extreme care” before including digital assets in 401(k) plans. Now that cautious stance may shift, following the Trump administration’s recent decision to rescind that guidance.
The move — announced late last month by the Department of Labor — is part of a larger hands-off approach that the administration has taken to the cryptocurrency industry. In a statement, the department said that Biden-era guidance “deviated from the requirements of the Employee Retirement Income Security Act [ERISA] and marked a departure from the department’s historically neutral, principled-based approach to fiduciary investment decisions.”
“The Biden administration’s Department of Labor made a choice to put their thumb on the scale,” said Labor Secretary Lori Chavez-DeRemer in the announcement. “We’re rolling back this overreach and making it clear that investment decisions should be made by fiduciaries, not D.C. bureaucrats.”
Financial advisors say the shift in guidance is a significant development for the industry, but it’s far from clear how it will affect the inclusion of cryptocurrency assets in workplace retirement plans moving forward.
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Officials say that cryptocurrency products make up a relatively small portion of the 401(k) market, but measuring the full scale of those offerings is difficult.
In a report released last November, the Government Accountability Office identified 69 cryptocurrency investment options accessible to 401(k) participants. However, the office noted that the Department of Labor, which oversees retirement plans, “does not have comprehensive data to identify 401(k) plans that give participants access to crypto assets.”
Under federal reporting requirements, plan sponsors have to provide annual updates on investment offerings within their plans to the Department of Labor. But current holes in those requirements can obfuscate the presence of crypto investments.
For instance, federal reporting rules do not mandate that plan sponsors disclose crypto asset investment options in plans with fewer than 100 participants. Simultaneously, plans with 100 or more participants consolidate self-directed brokerage window investments, making it challenging for the department to pinpoint investments in crypto assets.
With guidance gone, the fiduciary duty remains
Despite the newly relaxed guidance from the Trump administration, advisors say they’re not expecting a rush among plan sponsors to offer cryptocurrency assets.
“Nobody wants to be the first one on the ERISA side that gets in trouble for making access to something that goes belly up,” said Dann Ryan, managing partner at Sincerus Advisory. “With ERISA plans, there’s this kind of advice to participants component to it, and it makes [crypto investments] just more costly, more expensive to provide, and makes the disclaimers and their compliance all the more expensive.”
Although fiduciary standards might discourage plan sponsors from including crypto investments in 401(k) plans, advisors suggest that specific workarounds could address that obstacle.
Mike Casey, founder of American Executive Advisors in Alexandria, Virginia, said that more plan sponsors will likely offer access to digital coins through self-directed brokerage windows. Roughly 1 in 4 plans offer a brokerage window to investors in their workplace plans, according to the Plan Sponsor Council of America (PSCA).
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“Through this trading window, most plan participants will soon be able to allocate to bitcoin spot ETFs and other funds,” Casey said. “Eventually, the bitcoin spot ETFs will start appearing on the vetted list of plan funds. Many individual and institutional investors have already added positions to crypto in their IRAs and brokerage accounts. Adding bitcoin to 401(k)s and other qualified retirement plans is a natural next step with the steadily increasing adoption of the asset.”
Fiduciary duties of “prudence and loyalty” still apply to investments in brokerage windows. But the Department of Labor has said that it “generally had not required fiduciaries to select and monitor all options offered outside this core [investment offering] — for example, through self-directed brokerage windows — in accordance with ERISA’s fiduciary standards.”
If plan participants show enough interest, that softer standard could lead to an expansion of crypto offerings in brokerage windows.
In a recent PSCA survey of plan sponsors, 3% of sponsors said they currently offer crypto investments through brokerage windows. And nearly 20% of sponsors said they’re open to considering it in the future.
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“Adoption of crypto into the portfolio lineup would likely be driven by interest/requests from our participants,” one respondent said. “At present, with most participants favoring target date fund options, it is not likely to become a hot-button item for plan enhancement.”
Randy Bruns, founder of Model Wealth in Naperville, Illinois, told FP that offering crypto investments in a plan’s core offerings could “mislead participants into underestimating its speculative nature.”
“A more prudent approach would be to keep crypto exposure — if any — within diversified vehicles like target date mutual funds, where professional managers can assess and manage risk appropriately,” Bruns said.
Still, with plan sponsors wary of violating their fiduciary obligations, crypto is unlikely to make its way into a plan’s core investment offerings.
One plan sponsor in the PSCA survey said that while crypto is not appropriate for the core lineup, it “could have a place in the personal choice window, provided the plan sponsor has no fiduciary responsibility over its availability.”
Whether investors will make use of that option remains an open question. Despite bitcoin recently hitting an all-time high, advisors say that their clients haven’t shown much interest in cryptocurrencies recently.
“We haven’t noticed much demand from our clients for cryptocurrencies in their 401(k) plan,” Bruns said. “That said, our client base tends to be more disciplined (and therefore more boring) than the average investor.”
