Digital Investments in Retirement?

Your retirement savings represent years of hard work and sacrifice. The assets held in retirement plans, such as 401(k) plans, are essential to financial security in old age – covering living expenses, medical bills and so much more – and must be carefully protected.  That’s why plan fiduciaries, including plan sponsors and investment managers, have a strong legal obligation under the Employee Retirement Income Security Act to protect retirement savings.  These fiduciaries must act solely in the financial interests of plan participants and adhere to a high standard of care when managing plan participants’ retirement holdings.

In recent months, some financial services firms have started marketing investments in cryptocurrencies as potential investment options for participants in 401(k)s.  At this early stage in the history of cryptocurrencies, however, 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.

President Biden’s recent executive order on ensuring responsible development of digital assets highlights the significant financial risks digital assets can pose to consumers, investors and businesses in the absence of appropriate protections. 

Cryptocurrencies can present serious risks to retirement savings, including: 

  • Valuation concerns.
  • Obstacles to making informed decisions.  
  • Prices can change quickly and dramatically. 
  •  Evolving regulatory landscape.

Based on these concerns, the United States Department of Labor has issued a compliance assistance release for plan fiduciaries focused on 401(k) plan investments in cryptocurrencies.

For more information, click here.

Teaching Suggestions

  • Ask students if they, their friends or relatives have 401(k) plans.  If so, has anyone invested in Cryptocurriencies in their retirement plans and what have been their experiences?
  • Ask students to prepare a list of potential dangers in investing in cryptocurrencies or other digital investments.

Discussion Questions

  1. Why is the U.S. Department of Labor concerned about people investing in digital assets for their retirement plans at this time?
  2. Should the federal government prohibit 401(k) plan providers from investing in cryptocurrencies in participant’s retirement plans?  Why or why not?

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