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Cryptocurrencies, such as bitcoin and other digital assets such as non-fungible tokens, pose “significant risks and challenges” to 401(k) investors, including fraud, theft and financial loss, a the US Department of Labor said Thursday.
The employment agency warned that employers who add crypto investments to their company’s 401(k) plans could easily violate their legal obligations to workers who participate in the plan.
The advice comes as financial services companies have started marketing these investments as retirement plan options in recent months, playing on the growing popularity, the bureau said.
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“At this early stage in the history of cryptocurrencies … the US Department of Labor is seriously concerned about the decisions of the plans to expose participants to direct investments in cryptocurrencies or related products, such as NFTs , coins and crypto-assets,” Ali Khawar, acting assistant secretary at the Employee Benefits Security Administration, wrote Thursday.
Employers who offer a 401(k) plan have a fiduciary duty to the investments they make available. This legal obligation obliges them to carefully select investments and to monitor them constantly.
This obligation has been at the heart of a wave of 401(k) lawsuits filed over the past decade, which have alleged that workers lost money due to excessive costs and losses due to fund choices. reckless.
Regarding crypto in 401(k) plans, the Department of Labor outlined several risks and challenges in a compliance memo on Thursday.
Crypto is speculative, volatile and difficult to value, and it can be difficult for investors to make an informed investment decision, according to the bureau. Other properties — such as permanent loss of the asset if a password is forgotten — also pose risks, the agency said.
Regulations can also change quickly, the Labor Department said. President Joe Biden issued an executive order on Wednesday calling on the government to examine the risks and benefits of crypto. However, many crypto proponents viewed the order positively.
“The big question in the executive order was whether it was going to be balanced, whether it was going to talk about both the risks and the opportunities in crypto,” Matt Hougan, chief investment officer at Bitwise, told CNBC. Asset Management. “It’s pretty close to the result we were all hoping for.”