Crypto Investments in 401(k) Plans Low, but Still Risky: GAO

The popularity of crypto assets in 401(k) retirement plans remains modest, but given their risk profile the Department of Labor (DOL) and legislators should do more to protect investments, according to a Government Accountability Office (GAO) report.

According to GAO, while crypto assets account for a small percentage of the 401(k) market, the DOL provides little information on their inclusion in retirement plans. The report noted that crypto assets have “uniquely high volatility,” and its examination finds that there is no conventional mechanism for forecasting future returns.

The Congressional watchdog reported that the DOL has not mandated fiduciaries to oversee and choose investment alternatives beyond a plan’s primary offerings, including those accessible via self-directed brokerage windows. The report indicated that this absence of control may compel participants to independently handle their cryptocurrency assets.

The ability to invest in cryptocurrency within 401(k) plans has existed since 2022, when certain firms initiated the options. Nonetheless, the DOL’s Employee Benefits Security Administration published a compliance release that year advising employers to take considerable caution prior to including cryptocurrency investments in retirement plans. It underscored that plan fiduciaries must substantiate their judgments in accordance with ERISA’s prudence and loyalty criteria.

Despite the increasing interest in cryptocurrency assets, the DOL lacks extensive data to monitor which 401(k) plans provide them. The absence of federal regulatory oversight, coupled with this factor, results in certain crypto assets being traded in markets devoid of investor safeguards, stated GAO.

The report follows a 2022 request from Democratic Congressman Richard Neal of Massachusetts, the ranking member on the House Ways and Means Committee.