On May 28, the Department of Labor rescinded guidance that had warned employers to prepare for heightened scrutiny if they included cryptocurrency investments in their retirement plans. Employers who sponsor 401(k) and similar retirement plans have a fiduciary duty to exercise prudence in selecting investment options offered by these plans, whose tax-advantaged status is intended to promote retirement security and not speculative investment. The IRS cites “collectibles, such as art, antiques, gems, coins, or alcoholic beverages [and] certain precious metals” as examples of unsuitable investments for these plans. In 2022, the Biden Administration issued an official guidance to plan sponsors warning that cryptocurrencies would attract scrutiny because, similar to collectibles, they were risky assets that were difficult to value and safeguard. DOL is the primary federal agency responsible for enforcing federal laws overseeing work-sponsored employee retirement and health plans, to ensure workers’ hard-earned retirement savings are protected from financial fraud and risky activities. Expanding the scope of what’s considered an appropriate investment opens retirees and those saving for future retirement up to serious risks. Cryptocurrency in particular has already proven to be an incredibly vulnerable, unstable, and largely unregulated asset susceptible to market speculation and huge dips – exactly the opposite of what you want included in a stable, reliable retirement portfolio. 

The DOL rescinded that guidance on the heels of a widely-criticized dinner, exclusive White House access, and personal appearance by Trump for investors in “$TRUMP,” the President’s cryptocurrency “memecoin.” The administration is also rumored to be considering an executive order to broaden the range of acceptable 401(k) investments, following a U.S. 9th Circuit Court of Appeals ruling that dismissed a lawsuit filed by plan participants against trustees of a plan that offered target-date funds whose underlying investments included hedge funds and private equity funds.  

Impact: DOL’s decision to roll back this guidance does not remove the fiduciary duty for employers who may make risky crypto decisions with their workers’ retirement plans, as the Biden-era guidance did not outright ban retirement plans from investing in crypto. This move also does not expand small savers’ investment options, as everyone has the ability to invest in cryptocurrency if they choose to do so personally and accept those risks. However, it does send a signal that this administration is less interested in maintaining guardrails against risky retirement investments for workers, is less interested in reminding employers about their fiduciary responsibilities, and is open to allowing employers to include crypto investments in tax-advantaged plans like their workers’ 401(k)s. DOL indicated a return to a “neutral approach” to cryptocurrency alongside other types of retirement investment strategies – which could prove enormously risky for millions of future retirees.