Seyfarth Synopsis: In keeping with their recent more vocal stance on fiduciary duties, the Department of Labor has weighed in on the wisdom of 401(k) plans including an ESG fund or a crypto investment option in its line-up. And, it’s complicated.
As we’ve covered in this space, over the last few years the DOL has opined on the type of investment that would be appropriate for a fiduciary to include in a 401(k) plan’s line-up. For example, the DOL’s thinking on whether an ESG-focused investment is appropriate has evolved over this time period, from a hostile outlook to one that acknowledges that ESG factors may be pecuniary in nature, requiring an evaluation of those factors. [See our prior posts here and here for more background on that complicated history.] In fact, following their newly announced attitude toward ESG funds, in February the DOL’s EBSA issued a Request for Information to solicit input on how retirement savings could be impacted by “climate-related financial risk” and what actions the EBSA should be doing in that regard. The RFI focused on whether the EBSA should be collecting data on plans’ climate-related financial risk and whether the Form 5500 should be used for this task. This latest issuance from the DOL seems to mark a full about face on their ESG views, from one which almost forbids its consideration to one which mandates it.
One might have thought that following the DOL’s more open attitude toward ESG-focused investment options in 401(k) plans, they would be content to just let the prudent fiduciary standards generally apply to selection of investment options. That turns out not to be the case. The DOL has just issued a Compliance Assistance Release on 401(k) investments in crypto-currencies, including a wide range of digital assets. Contrary to their ESG views, in this case, the DOL expressly warns fiduciaries about including such an offering or risk personal liability. They cite such concerns as the speculative and volatile nature of, and the valuation concerns with, cryptocurrency, the difficulty in recordkeeping and custodying such assets, as well as the evolving regulatory environment. The agency also notes that not all 401(k) participants are sophisticated investors and evaluating whether they should invest their retirement savings in crypto would be extraordinarily difficult for them. Participants may surmise that because such a fund is offered in their plan, means it is an appropriate and prudent option for their own retirement savings.
The DOL leaves us with an ominous warning that it will conduct a program to investigate plans that offer investments in cryptocurrencies and related products to take “appropriate action to protect the interests of plan participants and beneficiaries.”