First Crypto 401(k) Coming, Defying Labor Department Warnings

The company suing the US Labor Department over threats to investigate cryptocurrency-friendly retirement plans is set to launch the nation’s first crypto-accessible workplace 401(k) this summer, company officials told Bloomberg Law.

San Francisco-based plan provider ForUsAll Inc. will launch an Alt 401(k) product “later this summer” that lets employee investors transfer up to 5% of their nest eggs directly into more than 50 different cryptocurrencies.

The rollout will likely transform what has, until now, been a theoretical showdown between fintech firms and federal regulators over the role of digital assets in employer-sponsored retirement plans. ForUsAll is poised to become a test case for whether crypto holdings help or hurt employee portfolios, and just how serious the Labor Department is in its anti-crypto posturing.

“We continue to move forward with our program,” said ForUsAll CEO Jeff Schulte. “We’re confident that we have designed it to comply with all the existing rules and regulations.”

The Alt 401(k) will be available through the company’s bundled 401(k) option or via standalone brokerage accounts for existing plans. Company officials said they have built in investor protections, such as investment caps, institutional-grade crypto limits, a quiz to ensure investors know enough about trading and proactive monitoring, and alerts for participants and sponsors.

“It’s really important to us that we make sure to get this right,” Schulte said. “We’re taking great pains to make sure every aspect of the program is working correctly.”

A Labor Department spokesperson didn’t immediately respond to a request for comment.

‘Armchair’ Adviser

One reason plan providers are taking pains to get it right is the DOL’s employee benefits regulator’s forthcoming “investigative program” targeting plan sponsors that opt to let their workers invest in cryptocurrency assets outright or through self-directed brokerage accounts.

ForUsAll partnered with the nation’s largest digital currency exchange platform Coinbase Global Inc. last year to offer in-plan brokerage windows to its 450 employer clients and their 65,000 workers. But the department’s warning has already steered at least some potential customers away, Schulte said.

“Some of them have, in response, said they’re going to defer rolling this out for now,” Schulte said. “But we know that there are employers who see that access to cryptocurrency through a self-directed window potentially has a role to play as part of their overall plan design.”

The company is suing DOL’s Employee Benefits Security Administration, alleging that it violated the Administrative Procedure Act (Pub.L. 79-404) by issuing that warning in the form of subregulatory guidance (CAR No. 2022-01).

Labor Secretary Marty Walsh told a congressional panel last week that EBSA is exploring formal rulemaking that would codify its guidance. But the Employee Retirement Income Security Act (Pub.L. 93-406) doesn’t give the agency authority to pick and choose investments anyway, Schulte said.

“While we’re heartened to see the Department of Labor is considering following the proper rulemaking process for a change, we remain gravely concerned that agency leaders continue to believe it is their job to play armchair financial adviser for the American people,” he said.

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‘Significant Departure’

ERISA requires retirement plan decision makers, called fiduciaries, to undergo and document a prudent, fact-finding mission when they select and monitor the investments retirement plan participants can access in their plans

The law, however, doesn’t outline specific investments or asset classes that are appropriate for workplace retirement investors, said Mitch Shames, founder and managing director at Harrison Fiduciary Group LLC. Instead, regulators and the courts have evaluated the process fiduciaries undertake to determine prudence.

The Labor Department’s guidance would be a “significant departure from the way ERISA was structured and promulgated” if it weighed in on the prudence of specific investments, as some industry experts have alleged.

“We have a system to evaluate whether crypto is prudent or not,” Shames said. “It would leave it up to the plan fiduciaries to make those determinations.”

The Labor Department has until at least August to respond to the ForUsAll lawsuit. The agency’s guidance warns plan sponsors that crypto assets are volatile and difficult to accurately value in the market. Even seasoned investors may have limited knowledge or experience trading digital coins, the agency said, making it difficult to “separate the facts from the hype.”

“That doesn’t mean that it’s banned—we were very clear that we are not banning cryptocurrency—but we were very clear that when you’re thinking about these things and you’re making them available and, importantly, when you’re actively promoting them, we will ensure they are in a participant’s best interests,” said Acting Assistant Secretary for Employee Benefits Ali Khawar in April.