Considerations before including cryptocurrency in employee benefit plans

August 09, 2023

male and female coworkers in discussion

Cryptocurrency has been a hot topic in the news and popular among some younger DIY investors. But should this relatively new type of investment be part of employee benefits packages?

Some investment firms have embraced cryptocurrencies and have marketed them to 401(k) plans and their participants as investment options. But several government agencies have issued warnings about these potentially volatile investment types.

Warnings issued about cryptocurrency

The U.S. Securities and Exchange Commission (SEC) issued an alert urging individual investors to exercise caution when considering crypto asset securities. They cite their exceptionally volatile and speculative nature, and that many platforms that sell, borrow or lend these securities lack protections and may not comply with federal securities laws.1 

But what about employee-sponsored plans? Until recently, cryptocurrency wasn’t an investment option for plan participants. The most notable player to get in the game was Fidelity, which announced in April 2022 that it would allow 401(k) participants to invest up to 20% of its account balances in Bitcoin, if its plan sponsors adopted it as an investment option.2 

However, it’s important to note that there are currently no crypto assets registered with the SEC as a national securities exchange, meaning they may not benefit from rules that protect against fraud, manipulation and other misconduct.1 

Fiduciary responsibilities for cryptocurrency

Those who offer retirement benefit plans to their employees are automatically considered fiduciaries, meaning they owe a duty of care and trust to plan participants and must act primarily in their interests.3 

When it comes to cryptocurrency, a plan sponsor’s fiduciary responsibility may depend on the channel those assets are offered through. When offered through a brokerage window, for example, cryptocurrencies may not require the same fiduciary oversights as other investments. The Department of Labor (DOL) excludes brokerage windows from the designated investment alternatives category.2 

Plan sponsors need to fully understand their fiduciary responsibilities in relation to the channels through which their investment options are offered, including cryptocurrencies.

Advocates for cryptocurrency respond

Not all financial professionals are opposed to the idea of offering cryptocurrencies as an investment option. Advocates suggest that this widely used asset class may provide diversification benefits and potentially reduce portfolio risks. They also suggest that younger investors might be more inclined to participate in workplace retirement plans if cryptocurrencies were offered as an option.

Plan sponsors need to weigh the potential risks and benefits that the largely unregulated cryptocurrency marketplace presents when designing their 401(k) plan investments. Contact your plan provider with questions about this relatively new asset class to ensure you’re fully informed and so that you’re prepared to address questions from plan participants.

1, Exercise Caution with Crypto Asset Securities: Investor Alert, March 23, 2023
2 Congressional Research Service, Cryptocurrency in 401(k) Retirement Plans, July 1, 2022
3, Retirement Plan Fiduciary Responsibilities, June 5, 2023