You don’t want to be putting crypto in retirement plans: U.S. Department of Labor
In the wake of U.S. President, Joe Biden signing an Executive Order governing crypto this week, there has been renewed confidence that digital assets on the blockchain have a future as an investment opportunity in America. However, the U.S. Department of Labor has warned against getting too proactive in some areas of investment for now.
Specifically, the Department is concerned that employers will start adding crypto investments to the company 401 (k) plans – the U.S. equivalent of superannuation here in Australia. The concern is that crypto, NFT and other digital assets on the blockchain pose significant risks as long-term investments, including fraud, theft, and the potential for the bottom to fall out of the value of assets, resulting in financial loss.
The Department specifically warned employers that making such investments may result in the company failing to meet their legal obligations to their employees with regards to retirement investments. “At this early stage in the history of cryptocurrencies … the U.S. Department of Labor has serious concerns about plans’ decisions 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, recently wrote.
In the U.S., employers who offer a 401(k) plan have a fiduciary duty relative to the investments they make available. That legal duty requires them to prudently select investments and monitor them on an ongoing basis. This is much the same as the obligations that superannuation funds have to their members in Australia.
The expectation in this sector is that investments should be focused on wealth accumulation, rather than speculative investments. When making short-term investments, you may well be willing to take on some risks, set against the potential for (big and quick) gains. However, the compound nature with which retirement funds are meant to operate means any drop in the portfolio value can have long-term implications.
And so, while 401 (k) and superannuation funds will no doubt be keeping an eye on crypto as an investment option (and there are products to that effect starting to land on the market), the expert advice is that the volatility of digital assets should still be seen as a red flag as a retirement investments option, for now.