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Throw Out 401(k) Crypto Guidance Lawsuit, DOL Asks Federal Court

Sept. 13, 2022, 4:48 PM

The US Labor Department has asked a federal judge to toss a lawsuit challenging its 401(k) cryptocurrency investing guidance, saying the March memo isn’t necessarily final and that plan provider ForUsAll Inc. lacks standing to sue.

Subregulatory guidance “does not have the force of law nor does it make new law,” the government argued in its dismissal motion Monday in the US District Court for the District of Columbia.

DOL’s Employee Benefits Security Administration ignited a lingering controversy this year by telling retirement plan sponsors they could face an “investigative program” if they allowed digital currencies in their workplace plans. Since then, the benefits agency has gone head-to-head against plan providers such as ForUsAll and money manager giant Fidelity Investments Inc. that are eager to capitalize on crypto enthusiasm.

ForUsAll, a low-cost 401(k) recordkeeping firm based in San Francisco, filed its lawsuit against the department in June, claiming regulators breached their statutory purview by instituting a policy shift without undergoing the required notice-and-comment process.

In its motion Monday, the agency said its guidance (CAR No. 2022-01) reiterates duties retirement plan fiduciaries already have under the Employee Retirement Income Security Act of 1974 (Pub.L. 93-406).

That legal framework gives EBSA the authority to interpret how a fiduciary’s duty of prudence and loyalty to plan participants applies within the context of a modern and evolving investment industry marketing risky products, the department argued. ERISA also bestows on the agency power to investigate plan sponsors to ensure they hold up their end of the deal.

“Plan fiduciaries remain free to structure 401(k) plans however they see fit so long as their actions comport with the statutory duty of prudence, and the Department decisionmakers remain free to pursue investigations or entertain enforcement actions in exactly the same way they could prior to the Release’s publication,” the government argued in the motion’s supporting memo.

The nature of the guidance “contemplates further agency action,” the memo states. Even if it didn’t, the release amounts to an “interpretive rule,” plainly not subject to notice-and-comment requirements in the Administrative Procedure Act (Pub.L. 404-79).

‘Dubious’ Predictions

ForUSAll is the nation’s first 401(k) plan provider to market a cryptocurrency product tailored for workplace retirement plans. In its June complaint, the company said it stood to lose up to a third of its potential client base because of EBSA’s guidance.

The department Monday said the “dubious” potential for lost business was speculative, at best, and that it would be due to the decisions of its third-party plan sponsor clients, not the benefits agency that issued the guidance.

“There is no dispute that, independent of the Release, the Department can investigate plan fiduciaries’ actions, including the offering of cryptocurrency investment options, and initiate appropriate enforcement actions,” the department said. “ForUsAll is merely speculating that an order invalidating the Release would have any impact on these third parties’ decisions not to offer ForUsAll’s cryptocurrency investment options.”

Attorneys for the company nor company spokespeople immediately responded to requests for comment.

The case is ForUsAll Inc. v US Dep’t of Labor et al, D.D.C., No. 1:22-cv-01551, motion to dismiss filed 9/12/22.

To contact the reporter on this story: Austin R. Ramsey in Washington at aramsey@bloombergindustry.com

To contact the editors responsible for this story: Martha Mueller Neff at mmuellerneff@bloomberglaw.com; Genevieve Douglas at gdouglas@bloomberglaw.com