The federal government has long recognized the need to regulate digital assets. However, it has yet to devise an all-encompassing plan to complete the task. As part of the Biden Administration’s Comprehensive Framework for Responsible Development of Digital Assets, the White House directed agencies to look for ways to strengthen digital asset regulation to help stabilize the digital assets market.
Plan sponsors should pay attention to these developments because there is growing interest by participants to invest in cryptocurrencies through direct investments or in brokerage accounts in their 401(k) plan.
The recommendations coming from the White House initiative could provide a stronger understanding in addition to helping plan sponsors and participants more effectively comprehend the potential benefits and risks of digital assets.
The Financial Stability Oversight Council (FSOC) issued a report in October that outlined several risks and gaps the federal government should consider addressing to stabilize the digital asset marketplace. The FSOC findings include the following:
In addition to these findings, the FSOC recommended that Congress pass laws to:
We previously wrote about the DOL’s 2022 warning for plan sponsors to use “extreme care” in adding cryptocurrency options to 401(k) investment menus and/or brokerage windows. The DOL said plan sponsors who allow crypto investments on brokerage platforms should expect to be questioned about how they balanced their obligation of prudence given the risks these investments pose.
This stance differs from the DOL’s Field Assistance Bulletin 2012-02R, which says that while plan sponsors are responsible for the prudent selection of the brokerage window service provider, they are not obligated to monitor the available investment options.
As the White House and federal agencies continue to develop a regulatory framework for digital assets, plan sponsors should pay close attention to how this effort could affect their ability to allow participants to invest their 401(k) funds in digital assets. It is important to monitor this topic, so plan sponsors can better understand their fiduciary obligations to participants.
Please reach out to discuss these developments and the potential benefits and risks of digital assets to your 401(k) plan.