Skip to main content

Crypto in retirement plans - should plan sponsors be considering it?

Cryptocurrency’s use and popularity have recently skyrocketed. What was once considered a fringe technology has since become mainstream.

According to a recent Pew Research Center study, 86% of Americans are at least somewhat aware of cryptocurrency. Of course, money has followed that notoriety and the total global market capitalization of all cryptocurrencies exceeded $1.28 trillion as of May 2022. It stands to reason that the retirement industry, particularly defined contribution plans, would attempt to take advantage of the buzz surrounding digital assets. Fidelity recently announced its intention to be first in line by allowing 401(k) plan sponsors to offer cryptocurrency in its core 401(k) investment lineups.

Fidelity made its announcement on April 26, 2022, only a little more than a month following the DOL’s publication of a Compliance Assistance Release on the same topic. In that release, the DOL directs fiduciaries to “exercise extreme care” in considering a cryptocurrency option in their retirement program investment menus. To those familiar with the typically neutral tone of the DOL’s releases, this one reads as a solemn warning. 

There are many situations where being first is valuable, but retirement program fund array construction is not one. Nearly every industry best practice urges plan sponsors to establish a process, follow it, and document all decision points. A sponsor of a retirement plan would find themselves challenged in following any process regarding an asset class that did not exist before 2009 and has never been meaningfully regulated. 

It is likely, maybe even certain, that cryptocurrency will become more widely adopted in the coming years.

Individual investors can and should invest wherever they deem appropriate, but plan sponsors should not feel compelled to adjust their retirement program’s investment offerings because of recent financial-technology developments. As with many other fiduciary considerations, a “wait and see” approach would be best in the case of cryptocurrency in employer-sponsored retirement programs. There is no reward for early adoption, and if the DOL is to be believed, there may actually be fiduciary repercussions

Please note – 403(b) Plans investments are statutorily limited to annuity contracts and/or custodial accounts and so would not have access to cryptocurrency investments.

Popular posts from this blog

COVID-19: Retirement and Benefit Plan Resources

As the COVID-19 crisis continues to unfold, we are closely monitoring news and updates from top sources. We’ll be updating this section as new developments unfold. Here are several key articles and links to help plan sponsors and administrators navigate the COVID-19 impact to retirement and benefit plans: Retirement Plans 4 Key CARES Act Provisions for Retirement Plan Sponsors Markets React to Coronavirus   Important Considerations for Retirement Plan Sponsors during the Coronavirus Pandemic In Fed We Trust Participant Education Services: Timely Help from a Safe Distance CRDs 100% Taxable for New York State and Local Income Tax Purposes in 2020 IRS Permits Remote Notarization of Participant Elections   Employee Benefits CARES Act Expands Health Coverage Rules Understanding the Historic $2 Trillion Stimulus Package Employee Compensation and Benefits During Closures and Furloughs DOL Clarifies Exemptions to Coronavirus Paid Leave Laws Small Business Exemption to

Coronavirus-related distributions 100% taxable for New York state and local income tax purposes in 2020

The Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law on March 27. Under the Act, participants affected by the coronavirus may be able to take distributions in 2020 of up to $100,000 from an employer-sponsored retirement plan or an IRA. Although allowing these distributions from a qualified retirement plan is optional, we have seen that a number of employers have chosen to amend their plans to permit such distributions. The Act provides that coronavirus-related distributions will not be subject to the mandatory 20% withholding nor the 10% early withdrawal penalty (for those younger than 59½) that would otherwise apply.

Timely Elections of 457(b) Distributions

If you sponsor a non-governmental 457(b) tax-exempt plan for your key management and highly compensated employees, perhaps the most significant administrative task occurs at the time participants sever employment.  Each 457(b) plan has a specified time period by which a participant may make an election to defer payment and timely postpone taxation by electing a future distribution date.  If no timely election is made by the end of the specified time period (“default date”), payment will commence within a generally brief period of time after the default date elapses, which may not be what the participant intended.