Author: Steven Grieb
June 2025
On May 28, 2025, the US Department of Labor (DOL) issued Compliance Assistance Release No. 2025-01 (the Release), updating guidance regarding 401(k) plan investments in cryptocurrencies. With this Release, the DOL repealed prior guidance issued in March 2022 in which it took a hard stance against Employee Retirement Income Security Act of 1974 (ERISA) fiduciaries allowing cryptocurrency investments in defined contribution plans.
New neutral stance on digital assets
In 2022, the DOL cautioned fiduciaries to "exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan's investment menu for plan participants," and threatened to investigate plans that offer such investments.
However, the new Release states that the DOL is now neither endorsing nor disapproving of plan fiduciaries who include cryptocurrency in a plan's investment menu. The DOL's latest position is that an ERISA fiduciary must simply apply the standard duties of prudence and loyalty when deciding whether cryptocurrencies are an appropriate investment under their plan. The Release makes clear that this position applies to a wide range of digital assets, including those marketed as tokens, coins and crypto assets.
The DOL has indicated that the Release isn't intended to specifically encourage investment in digital assets through retirement plans, but create a "neutral stance" on the issue. In a news release accompanying the Release, the DOL confirms that "investment decisions should be made by fiduciaries, not DC bureaucrats."
Continued fiduciary concerns
While the Release appears to have lifted the threat of DOL investigations into plans offering cryptocurrency investments, it offers no protection against fiduciary breach claims, and the fiduciary concerns around cryptocurrencies raised by the DOL in 2022 remain. Under the recent Supreme Court decision in Hughes v. Northwestern University, fiduciaries have an obligation to ensure the prudence of every designated investment alternative (DIA) that participants can elect to invest in. When ERISA fiduciaries include a cryptocurrency option on a 401(k) plan's menu, they effectively tell the plan's participants that knowledgeable investment professionals have approved the cryptocurrency option as prudent.
ERISA fiduciaries might continue to find serious concerns relating to cryptocurrency from several factors that are inherent to these investments. For example:
- This option can be highly speculative and volatile, even for long-term investments of retirement savings.
- Cryptocurrencies can have a higher rate of fraud or theft than some other types of investments.
- Cryptocurrencies aren't held in trust or custodial accounts, which can create difficulties for retirement plans, and they can be extraordinarily difficult to value, even for experienced investors.
Moreover, the lack of knowledge of how digital assets fit in the context of a participant's overall asset allocation introduces an additional layer of risk that fiduciaries must consider.
While most retirement plans currently lack direct exposure to digital assets, plan sponsors and fiduciaries should recognize that participants likely already have indirect exposure through the underlying holdings (e.g., publicly traded companies with crypto holdings, financial services firms with crypto operations) of existing plan investment options. The Release's guidance on direct digital asset investments therefore raises the prospect of amplified exposure to this asset class, with important implications for participants' overall portfolio risk.
Evolving regulatory environment
The legal rules governing the cryptocurrency markets may be evolving quickly. Some firms have already begun marketing investments in cryptocurrencies to 401(k) plans as potential investment options for retirement plan participants. Any plan that considers adding cryptocurrency investments to their fund lineup must consider the potential for future regulations or requirements that might apply, as well as the capabilities of their trustee and recordkeeper.
ERISA fiduciaries who add cryptocurrency as an investment option must include in their analysis how regulatory requirements may apply to issuance, investment, trading or other activities. For example, any new required disclosure rules that may apply to digital assets would need to be satisfied automatically under the plan.
ERISA fiduciaries should consider new legal requirements regarding cryptocurrency to be a matter of "when," not "if." Because the technology in this field is changing so quickly, it's difficult to know how any applicable rule will change in the coming years. By adding a cryptocurrency option to a plan's investment lineup, the fiduciaries are effectively agreeing to comply with whatever new regulations may apply to these investments in the coming years.
Gallagher insight
Following the DOL guidance issued in 2022, defined contribution plans have avoided crypto assets, as the risk of a DOL investigation effectively precluded the adoption of these types of investments. However, with the new DOL position announced in the Release, participant demand for digital asset investments might increase, pressuring investment fiduciaries to deliberate the prudence of an asset class they haven't yet considered. Retirement plan fiduciaries should be prepared to answer questions raised by participants who may want to invest their plan account in cryptocurrencies.
Fiduciaries who consider allowing investments in any digital asset should give a careful review of such to meet their fiduciary requirements, including weighing the risk factors unique to digital assets. Further, the plan's investment policy statement would need to be reviewed and perhaps updated to account for this new asset type, incorporating appropriate metrics for evaluation of the investment class. In cases where participant demand for these investments is high, the plan administrator might consider adding a self-directed brokerage account option rather than including digital assets in the general investment line-up. While the DOL may no longer be requiring defined contribution plan fiduciaries to approach cryptocurrency investments with "extreme care," fiduciaries should follow a vigilant process before making any cryptocurrency investments available to their participants.
