Logos of the main cryptocurrencies Bitcoin, Ethereum, Binance, Cardano, Ripple, Dogecoin, Tether, Solana, Polkadot.
While President-elect Donald Trump has vowed to make the U.S. the "crypto capital of the planet," right now cryptocurrency assets make up only small part of 401(k)s, according to the government watchdog, Government Accountability Office (GAO).
While some 401(k) plans now offer the option to invest in crypto assets like bitcoin – and amid growing concerns from the Employee Benefits Security Administration about the risks associated with investing in cryptocurrency assets, the GAO recently investigated the prevalence of crypto assets in the 401(k) market.
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Crypto assets in 401(k) plans do have uniquely high volatility and their returns can come with “considerable risk,” according to the GAO report, 401(k) Plans: Industry Data Show Low Participant Use of Crypto Assets Although DOL's Data Limitations Persist, however, cryptocurrencies only encompass less than 1% of defined contribution (DC) plans.
The investment amounted to substantially less than 1% of the 401(k) market, whether measured by plans, participants or assets.
“While all investments have risks, our analysis shows that investment in selected crypto assets is uniquely volatile. The potential for high returns can come with considerably high risk,” according to the report, which was published on Dec. 4, in response to a request from Rep. Richard Neal, D-Ma., who is the Ranking Member of the House Committee on Ways and Means.
“Defined contribution plans are a key leg in our three-legged retirement savings system, with millions of Americans investing trillions of savings for a secure tomorrow,” said Rep. Neal, in response to the report. “As markets evolve and new investing vehicles emerge, it is incumbent on the federal government to ensure proper oversight. Today’s report shows there’s more to do to protect American workers and their retirement savings from the volatile, high-risk environment that comes with cryptocurrencies.
“The crypto market, since it began emerging as a 401(k)-investment option for some retirees and investment firms in 2022, has not been fully subjected to proper oversight and regulation.”
Related: Bitcoin in your 401(k)? New bill would boost alternative assets in retirement plans
The Department of Labor still doesn't have the data to systematically measure crypto assets in 401(k) plans, according to the report. “DOL guidance states that 401(k) fiduciary responsibility does not change when crypto assets are offered as investment options. ERISA requires fiduciaries to be prudent in selecting and monitoring their 401(k) plans' core investment options, including any crypto asset investment options.”
DOL officials told GAO they generally had not required fiduciaries to select and monitor all options offered outside this core, in accordance with ERISA's fiduciary standards.
Lack of comprehensive data, along with regulatory uncertainty GAO has previously identified, limits federal oversight of participant investment in crypto assets in 401(k) plans.
“As a result, as this report outlines, it has brought uniquely high risk to retirees. Americans must be confident that their investments are secure, and do not face unnecessarily high volatility, cybersecurity, and theft risk,” said Neal.
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
