The Ministry of Labor (DOL) has made it easier for employers to add cryptocurrency to their 401(k) plans. The agency declined to call planning sponsors to use “extreme caution” when considering crypto investments, Biden-era guidance in 2022. That change reduces regulatory pressure on planning sponsors.
DOL under the Trump administration has reduced what it says is an overreach on the part of government agencies. The move coincides with Trump’s strong support for the cryptocurrency industry.
Additionally, the Securities and Exchange Commission (SEC), which is responsible for cryptocurrency regulation, is reviewing its efforts under new SEC Chairman Paul Atkins. Atkins recently vowed to change the crypto market, claiming that it has been “suffing in seconds for years.”
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In a press release announcing the changes, DOL said the 2022 language deviated from the Employee Retirement Income Security Act (ERISA) requirements and represented a departure from the agency’s neutral approach to fiduciary investment decisions.
With the warning language being revoked, DOL says it has taken a neutral stance and has neither supported nor disapproved of planning sponsors, including cryptocurrency in the planned investment menu.
“The Biden administration’s Department of Labor has chosen to put their thumbs on scale,” U.S. Labor Secretary Lori Chavez Deremar said in a press release. “We’ve been making this oversight and make it clear that investment decisions should be made by the trustees rather than by the DC bureaucrat.”
Cryptocurrency in the 401(k) Plan: There are lots of risks
Cryptocurrency has supporters, including large Wall Street companies such as JPMorgan, Goldman Sachs and Morgan Stanley, but providing more access via the 401(k) plan is risky. After all, Bitcoin, the main digital token, is known for its volatility and wild swing swing up and down.
“With Crypto, you can lose everything or get ten times more,” says Denny Artache, president and CEO of Artache Financial Group. That volatility may be fine for people in their 30s and 40s, but if their retirement is in the next five or ten years, they can’t afford to lose 50% in one day.
For investors in their 50s who need money to continue the rest of their lives, Artache advises investing a lot of money in crypto. If they are in their 30s and 40s and are looking for speculative, high-risk investments, he says Crypto can give them that.
My eyes are wide open
When it comes to adding cryptocurrency to the 401(k) plan, Derrick Longo, wealth advisor at Exencial Wealth Advisors, says Savers should open their eyes wide and understand the risks associated with investing in purely speculative things. Prices tend to move along with market sentiment and change frequently.
“This is a speculative investment. Is it okay to move? Do you understand what bitcoin in your bucket falls into? Just because you’ve heard so much on the news doesn’t mean it’s a good idea to buy,” says Longo. “It should match your risk tolerance.”
There is also the risk that if more planning sponsors are included in the 401(k), then Bitcoin is not so dangerous.
Currently, you will need to download the app to purchase Bitcoin. If you are choosing a 401(k) plan, all you need is to access by clicking the button or filling out the form. “I don’t know how Bitcoin will do in the long run. You can spend someone completely wrong time and destroy retirement,” says Longo.
