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6 Things Employers Should Know Before Offering Cryptocurrency In The 401 (k) Fisher phillips

By on September 22, 2021 0

Cryptocurrencies are one of the hottest topics in the world right now, and for good reason. Bitcoin’s fluctuations over the past year – from $ 10,000 in July 2020 to $ 63,000 in April 2021 and now settled at around $ 41,000 – some employees and retirees are asking to include cryptocurrencies in their retirement plans 401 (k) sponsored by employer. On the flip side, the potential for negative valuation swings makes other people say they might be too risky for retirement savings. This overview will provide six key considerations for plan sponsors before considering including a cryptocurrency option in your retirement plans.

Overview of the 401 (k) s

Plan sponsors hold in trust the retirement assets of the 401 (k) plans they are responsible for overseeing. Under the Employees Retirement Income Security Act 1974 (ERISA), the people who make decisions about the plan act as trustees. It is a well-established law that trustees must act exclusively in the best interests of plan members and beneficiaries. These include ensuring that plan assets are diversified, understanding fee structures to ensure reasonableness, and carefully selecting and monitoring managers and service providers.

ERISA does not dictate who specific types of investment options must be included in a 401 (k). Rather, the law requires trustees to exercise the care, skill, prudence and diligence that a prudent person would exercise in choosing an investment option in order to minimize the risk of significant losses. The focus is on the process rather than the returns on investment.

Many employers use an Investment Policy Statement (IPS) to help govern 401 (k) management by plan trustees. An IPS will often contain provisions regarding the fund selection process, frequency and factors used in monitoring performance and asset allocation targets. Deviation from IPS guidelines may serve as evidence of a breach of fiduciary duty. This could lead to the liability of the employer and the individual.

4 cryptocurrency risks with 401 (k) s

In a typical 401 (k), an employer offers their employees limited investments, such as ETFs, mutual funds, and sometimes company stocks. This is due to the employer’s role as trustee and the risks associated with inappropriate investment choices. Indeed, one of the most common reasons 401 (k) participants sue their employers is due to inappropriate investment choices.

Cryptocurrency as a 401 (k) investment option would be an exotic choice by current standards and come with several risks, including:

  • Cryptocurrency does not quite match the definition traditional investment vehicles. Depending on how it’s worded, the IPS can be interpreted as prohibiting cryptocurrency, even if it doesn’t expressly do so.
  • The IPS guide for the selection of investments to offer may not talk about unique issues involved in the valuation of cryptocurrencies and modifications may be necessary.
  • Cryptocurrencies have a history of dramatic declines valuing, putting trustees at risk of loss and endangering the employer’s public reputation.
  • Yes fees associated with the cryptocurrency offering in the plan are considerably higher than those of other available investments, trustees may be exposed to a default claim (a matter currently pending in the United States Supreme Court).

Why Consider a 401 (k) Crypto?

Considering the potential risks, employers may ask: why bother? There are several reasons why, as an employer, you might want to consider giving your employees the option of investing in cryptocurrency through their 401 (k):

Cryptocurrencies are available

Cryptocurrencies are not prohibited as an investment option in a 401 (k) plan by ERISA. Additionally, as cryptocurrencies such as bitcoin and ether become more mainstream, regulators have taken notice. For example, the Office of the Comptroller of the Currency (OCC) recently ruled that domestic banks can hold cryptocurrencies and can manage cryptocurrencies the same way they manage other assets.

Benefits of cryptocurrency could attract talent

Simply put, more and more employees want to invest in cryptocurrency and use retirement accounts to do so. Most employers do not yet offer this option to their employees. Employers who do so can have an advantage when it comes to attracting and retaining talent, especially at a time when many employers are struggling to do so.

401 (k) s offer tax benefits

Using a 401 (k) to purchase cryptocurrency allows employees to take advantage of 401 (k) tax incentives, whether they use a tax-deferred 401 (k) or a Roth 401 (k). Buying cryptocurrency in a traditional Roth 401 (k) 401 (k) means that employees can invest in cryptocurrencies without having to worry about the complexity of tracking cryptocurrency transactions to calculate returns. taxes they may owe resulting from the purchase or sale.

6 Crypto 401 (k) Considerations for Employers

Before you decide to offer cryptocurrency in your 401 (k) plans, you need to consider the following six concepts:

  1. You should confirm with your supplier 401 (k) whether providing cryptocurrency is an option.
  2. You should evaluate the IPS to ensure that there is no provision expressly prohibiting the inclusion of cryptocurrencies in the plan.
  3. You should ensure that the trustees follow all the steps in their IPS for the selection and monitoring of the performance of the new asset class.
  4. You may want to consider some type of limit on the amount an individual can engage in crypto to reduce the potential risk associated with volatility.
  5. You must continue to participate in a 401 (k) Crypto optional. Ideally, employees could choose from a list of cryptocurrencies who they want to hold in their 401 (k) wallets – but most importantly, they must be able to choose whether they want to include them at all.
  6. Decisions about retirement investments are arguably the most important decisions a person can make in their lifetime. You need to make sure that you, or your pension provider, can give employees information material needed on cryptocurrencies to ensure that employees don’t go it alone when making critical investment decisions for their future. Despite the growing popularity of cryptocurrencies, it should not be assumed that a potential investor knows the difference between an even coin and more established coins.


The world and the employment space continue to change rapidly. Employees want autonomy in everything they do, including their retirement options. As cryptocurrency continues to gain adoption and the number of cryptocurrency retirement providers continues to increase, we expect more employees to start asking questions about the availability of retirement accounts. of cryptocurrency.

Crypto retirement plans, however, are not without risks. Therefore, a thorough assessment with a legal advisor trained in these matters is necessary before determining which route is right for you.