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DOL Official Eases Crypto Audit Fears Amid Fidelity 401(k) Plans

May 23, 2022, 8:59 PM

Retirement plans that are clients of financial institutions marketing cryptocurrency products won’t automatically be subjected to a US Labor Department audit, an agency official said Monday.

The comments from Ali Khawar, acting assistant secretary of employee benefits, come as Fidelity Investments Inc. prepares to launch one of the first mainstream crypto products for 401(k) investors, despite DOL warnings. That’s raised fears from some Fidelity clients that their association with the company could lead to investigative action.

“That’s not really the way our enforcement program works,” Khawar said at a conference of the International Foundation of Employee Benefit Plans. The agency doesn’t have the resources to do that, he said.

The DOL issued guidance in March (No. 2022-01) warning about the risks of making cryptocurrency part of 401(k) investments. The guidance says crypto assets are volatile and difficult to accurately value in the market.

Fidelity is one of the nation’s largest retirement plan service providers with a total of more than 32 million US participants and 22,000 employers. Despite its decision to make that crypto product available, it’s ultimately up to individual retirement plans whether to adopt it.

Khawar said Monday he has been questioned about “whether being a client of a particular financial institution that has indicated a desire to really go into this area in a big way is going to trigger a DOL audit.”

He said the agency is focusing its investigations on “aggressive marketing” that appears to be used to convince plan fiduciaries to allow risky cryptocurrency investments in 401(k)s.

“We see a lot of forces really encouraging plan fiduciaries to get in, right? ‘Get in on the ground floor, get in while you can, you’ll regret it for the rest of your life if you don’t get in right now,’” Khawar said. “But we have not seen a lot of things that are focused on plan fiduciaries that really encourage them to make sure that they’re aware of the risks.”

To contact the reporters on this story: Sara Hansard in Washington at shansard@bloomberglaw.com; Austin R. Ramsey in Washington at aramsey@bloombergindustry.com

To contact the editors responsible for this story: Alexis Kramer at akramer@bloomberglaw.com; Martha Mueller Neff at mmuellerneff@bloomberglaw.com