On March 10, 2022, the US Department of Labor (DOL) issued Compliance Support Release No. 2022-01 (“Release”, available). Here) This is a “careful” before ERISA plan trustees add cryptocurrency options to their 401 (k) plan’s investment menu or allow cryptocurrency investments through the brokerage window. Warn you to pay.
The release specifically refers to “cryptocurrencies,” but in footnotes, the inferences and principles of the release include “tokens,” “coins,” “cryptocurrencies,” and those sold as derivatives thereof. It explains that it also applies to a wide range of “digital assets”.
With the release of the DOL, there are “serious concerns” about the cautiousness of ERISA trustees’ decisions to expose participants in 401 (k) plans to direct investment in cryptocurrencies or other products with cryptocurrency-related values. I said there is. DOL further stated that investing in cryptocurrencies “presents significant risks and challenges” to participants’ retirement accounts and “includes the risk of fraud, theft and loss” for all of the following reasons: ..
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Speculative and volatile investment.. Investing in cryptocurrencies is highly speculative and is subject to extreme price fluctuations. This can have a “catastrophic effect” on participants, especially those who are approaching retirement or who are heavily assigned to cryptocurrencies.
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Plan participants are less likely to make informed investment decisions.. Cryptocurrencies are very different from investing in regular retirement plans, and participants may have sufficient knowledge and technical expertise to make informed decisions about investing in them. The sex is low. In the release, DOL said that if the trustees of a plan that was obliged to be cautious and loyal under ERISA chose to include cryptocurrency options in their 401 (k) plan investment menu, they would say, “They Effectively communicate knowledgeable investments to plan participants. Experts have approved cryptocurrency options as a wise option for plan participants, which can easily confuse plan participants and make them confused. It can cause losses. “
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Management and records management concerns.. Cryptocurrencies pose storage and records management issues that can pose additional challenges to retirement plan trustees. For example, cryptocurrencies usually exist as a line of computer code in a digital wallet and, like traditional plan assets, are held in a trust or custody account that is immediately valued and available to pay the profits and expenses of the plan. not. With some cryptocurrencies, simply losing or forgetting your password can result in permanent loss of your assets. And other ways of retaining cryptocurrencies can be vulnerable to hackers and theft.
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Evaluation concerns.. In the release, DOL expressed concern about the reliability and accuracy of cryptocurrency valuations, experts saw cryptocurrency valuations as complex and challenging, and “underlying opinions” on key aspects of the cryptocurrency market. He pointed out that there were “differences” and that none of the models were proposed for valuation. Cryptocurrencies are as sound as traditional discounted cash flow analysis of stocks or debt interest and credit models. Or it can be academically protected.
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Evolving regulatory environment.. With the release of DOL, the rules and regulations governing the cryptocurrency market may have evolved, and some market participants are operating or not complying with existing regulatory frameworks. Said there is a possibility. DOL is considering whether to include cryptocurrency investment options in 401 (k) plans, how regulatory requirements apply to issuance, investment, trading, or other activities, and those Warned that the analysis should include how the requirements of the company affect investment, according to plan participants, for example, the sale of some cryptocurrencies is the illegal sale of securities in unregistered transactions. Please note that you may configure. DOL also takes care and responsibility that plan trustees do not participate in illegal transactions and exposes plan participants to the risk of improper disclosure and loss of investor protection guaranteed by securities law. I warned that I need to be careful.
Based on these and other concerns, DOL will conduct a “research program” in its release aimed at providing participants’ investment in cryptocurrencies and related products to protect the interests of planners. He said he expects to take “appropriate measures” and beneficiaries of such investments. The DOL is in charge of overseeing cryptocurrency investment options or permitting cryptocurrency investments through brokerage windows. You have to expect that. “
This release may show DOL’s renewed interest in regulating the window of a brokerage firm. Intermediary windows have existed since the 1980s, but DOL’s first guidance on what constitutes an intermediary window was not published until 2010. In 2010, DOL published the Participant Disclosure Rule (sometimes referred to as the “404a-5 Rule”) under the ERISA section. 404 (a) defines a “designated investment alternative” (DIA), then defines a brokerage window by excluding it from the definition of DIA, which allows participants and beneficiaries to choose their investment. I will do it. ” Beyond what is specified in the plan ” [29 C.F.R. § 2550.404a-5(h)(4)].. Rule 404a-5 requires that the administrator of a participant-led personal account retirement plan provide participants with both initial and ongoing disclosure explaining fees and expenses, DIA, and other information. increase.
In response to questions asked by the profit community about the 404a-5 Rule, DOL published Field Assistance Bulletin (FAB) 2012-02 on May 7, 2012. At FAB2012-02, DOL explained how participants in the 404a-5 rule participated. Disclosure requirements apply to investments that are made available through the investment platform but are not specifically designated as DIA in the plan, such as brokerage windows and similar arrangements. In Q & A 30 of FAB 2012-02, DOL will determine if a certain number of plan participants, including an intermediary, choose an investment that is not a DIA and should be processed. He controversially stated that positive obligations could arise. As a DIA, it is therefore subject to trustee monitoring and participant disclosure requirements.
On July 30, 2012, DOL published FAB 2012-02R (available) in response to concerns raised by the benefits community regarding FAB 2012-02. Here), That Q & A 39 replaced the controversial guidance contained in Q & A 30 of FAB 2012-12. In Q & A 39 of FAB 2012-02R, DOL stated that the intermediary window is not a DIA for the purposes of the 404a-5 Rule, but a mediation window that allows participants and beneficiaries to choose to invest beyond what is specified. Mentioned the trustee of the prepared plan. DIA is in the legal definition of ERISA Section 404 (a) of caution and loyalty to participants and beneficiaries who use the Mediation Window, including taking into account the nature and quality of the services provided in connection with the Mediation Window. You will continue to be detained.
On August 21, 2014, DOL issued a Request for Information (RFI), 79 Federal Reserve System.Registration 49469 (available Here), Regarding the use of brokerage in retirement plans, in the end, DOL did not issue additional guidance on brokerage.
Now, a few years later, DOL issued Compliance Assistance Release No. 2022-01. This may indicate DOL’s awakened interest in making FCM over-the-counter investments (at least cryptocurrency investments) comply with fiduciary oversight and participant disclosure requirements. Stay tuned for this release as it may encourage backlash from plan sponsors and other members of the regulated community. In the meantime, the plan sponsor will determine if the plan’s participants and beneficiaries are investing in cryptocurrencies, and if so, with the prudence and loyalty that is the responsibility of the ERISA trustee. You need to be prepared for the possibility of a DOL survey asking you to “square your actions.”
