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Labor Department warning opens divide on crypto in 401(k) plans

Sarah Wynn, CQ-Roll Call on

Published in Business News

WASHINGTON — Lawmakers and investor advocates are ringing alarms over the idea of allowing cryptocurrency into 401(k) and other retirement plans, especially after a turbulent month that saw some projects implode and other cryptocurrencies go into free fall.

The debate kicked off in March when the Labor Department posted a compliance release that said those in charge of 401(k) retirement plans should “exercise extreme care” when contemplating adding cryptocurrencies to investment options. A month later, one of the largest financial service providers, Fidelity Investments, said it would offer the option to invest part of 401(k) plans in bitcoin.

ForUsAll, a 401(k) provider, sued the Labor Department this month, saying the warning violated the law that governs how federal agencies develop and issue rules. The California-based company said the department has no legal authority or existing precedent and said its guidance was issued suddenly and without public comment.

ForUsAll argued in its suit, filed in U.S. District Court for the District of Columbia, that the department’s cautionary release sets a precedent and could embolden it to ban other investment types or strategies.

“The DOL plays several important roles that serve American workers — but ‘armchair financial adviser’ shouldn’t be one of them,” Jeff Schulte, CEO at ForUsAll, said in a statement. “Congress never gave government officials the power to pick winners and losers, let alone the legal authority to arbitrarily restrict entire asset classes.”

Critics say cryptocurrency volatility can be particularly devastating for those saving for retirement. Supporters say it’s another way to build wealth.

 

Most 401(k) plans have a menu of pre-selected traditional investments such as mutual funds, or allow a self-directed brokerage window, which lets employees pick specific investments. The Labor Department said those responsible for overseeing cryptocurrency investments or allowing investments in cryptocurrencies through brokerage windows “should expect to be questioned.”

Labor Secretary Marty Walsh indicated that the department was looking at a possible rulemaking when he was grilled June 14 at a House Education and Labor Committee hearing about the department’s decision to issue a warning on cryptocurrency.

The department is trying to restrict the types of investments that Americans can choose to make when they don’t have the legal authority to do so, said David Ramirez, chief investment officer at ForUsAll, said in an interview. The company manages 401(k) plans for small and many rapidly growing tech companies and is focused on providing access to alternative investments, including cryptocurrencies.

“We feel that this is really a form of informal rulemaking that happened overnight,” Ramirez said. “That creates a very dangerous slippery slope.”

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