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U.S. DOL Issues New Crypto & Brokerage Window Guidance
This new investigative effort could raise an issue with an area of plan investments that most plan sponsors have not worried about a great deal.
Andrew
5:22 18th Apr, 2022
Policy

Recently, the U.S. Labor Department issued new guidance regarding the holding or investing in cryptocurrency by 401(k) retirement plans. This new guidance specifically impacts retirement plans that permit participants to use self-directed brokerage accounts to trade individual stocks on their own.

Under the new guidance, employers could have fiduciary responsible for participant cryptocurrency trades made through their self-directed accounts. In the guidance, the DOL announced that it will begin an “investigative program” that would require plan sponsors to “square their actions with their duties of prudence and loyalty” if they permit participants to invest in cryptocurrency through their self-directed accounts.

This new investigative effort could raise an issue with an area of plan investments that most plan sponsors have not worried about a great deal. That is the issue of brokerage windows, which have previously not been subject to much, if any, scrutiny from the DOL. The lack of scrutiny generally allowed plan sponsors to set up brokerage windows for participants and then avoid any liability for poor investments made by participants. The prevailing thought was that the setting up of a self-directed brokerage opportunity was a fiduciary duty but, once set up, the investments were the sole responsibility of the participants.

The DOL’s stated desire to now ask plan sponsors to explain why crypto was part of a participant’s self-directed account could open the door to an entirely new level of scrutiny for all self-directed investments. And could create an entirely new arena for potential plan sponsor liability from both federal regulators and plaintiff’s attorneys.

The DOL issued guidance approximately ten years ago that attempted to regulate brokerage windows but the guidance was taken back after criticism. That was the last real mention of any potential fiduciary duties to monitor participant self-directed investments until now. All prior guidance had discussed the issues around whether a brokerage window should be added. In fact, previous guidance had made a point to remind plan sponsors that they should not interfere with participant investments as it could lead to fiduciary liability. This caused most plan sponsors who did add self-directed accounts to their plans to take an entirely hands-off approach to investments inside those account.

With this new guidance, plan sponsors may need to reconsider their approach. At the least, plan sponsors should determine if cryptocurrency is being invested in by participants. For many plans such investments should not be a concern as many trading platforms do not support cryptocurrency investments. However, all plans should make sure and consider discussing possible restrictions with their investment partners.

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