Cryptocurrency worries: Are 401(k) fiduciaries going in with eyes open?

The Labor Department is extremely concerned that retirement plan fiduciaries are planning to encourage investing in cryptocurrency without a clear understanding of the risks involved, Employee Benefits Security Administration Acting Assistant Secretary Ali Khawar said Thursday.

“There are real questions to be asked,” he told those watching a webinar sponsored by the American Academy of Actuaries. “It wasn’t clear to us that the fiduciaries are going into this with their eyes open.”

Khawar referred to guidance issued by the Labor Department this week. That guidance states that the department has serious concerns about the prudence of a fiduciary’s decision to expose 401 (k) plan’s participants to direct investments in cryptocurrencies.

“Based on these and other concerns, EBSA expects to conduct an investigative program aimed at plans that offer participant investments in cryptocurrencies and related products, and to take appropriate action to protect the interests of plan participants and beneficiaries with respect to these investments,” the guidance states.

Khawar also said that much of EBSA’s work continues to focus on issues of equity—how to expand the number of participants in retirement programs and how to improve the programs themselves.

He said, for example, a mother might take time away from her career after having a child or someone may become a caretaker for a member of their family.

“The impact of that on their retirement income is significant,” he said.

Khawar said the department is still reviewing the comments received on its proposed rule on Environmental, Social and Governance issues.

The Biden Administration proposal is a reversal of a Trump Administration regulation that essentially would have kept ESG issues from being considered when investments were made. Khawar said that had a “chilling effect.”

The question of whether or not ESG issues should be taken into account should not be dictated by any administration, he said, noting that sometimes such issues are material and other times, they are not. He said administration wants to issue a final rule as soon as possible.

He said that as defined contribution plans become more popular, policymakers also must better equip people about decisions they are making about their retirement plans. “Most people are not actuaries,” he said.

He said that in addition to being better informed about the plans in which they are investing, people must be better equipped to deal with the “de-accumulation phase.” “People really don’t know what to do with their money,” he added.

EBSA also is concerned about conflict-of-interest issues that the industry may face as retirement plans move more toward defined benefit plans.

“We really don’t have a system that equips people to make those decisions on their own,” he said, adding that people must be able to trust people who give them advice.