The Trump administration on Wednesday reversed Biden-era rules restricting cryptocurrency and related digital assets like NFTs and meme coins in 401(k) retirement plans.
Labor Department Rescinds ‘Extreme Care’ Guidance
The Labor Department withdrew guidance issued in 2022 that urged employers to exercise “extreme care” before allowing crypto investments in retirement accounts. At the time, the Biden administration warned of the “serious concerns” around fraud, theft, and loss risks in exposing retirement savings to such volatile assets.
The new Trump administration guidance states that the “extreme care” standard is not part of the Employee Retirement Income Security Act (ERISA), and clarifies it is “neither endorsing, nor disapproving of” employers who choose to include crypto in 401(k) offerings.
This new approach also extends to a broad range of digital assets, including tokens, coins, crypto assets, and derivatives.
Knut Rostad, president of the Institute for the Fiduciary Standard, condemned the move as a “big mistake,” arguing that cryptocurrency “doesn’t belong in a 401(k), period.” He said rescinding the cautionary guidance “sends the wrong message” by effectively giving a green light for employers and investors to embrace crypto despite its risks.
The rollback occurs amid President Trump’s launch of a $TRUMP meme coin, which has generated billions in paper wealth and prompted calls from Democratic senators for an ethics investigation.
Trump has publicly pledged to make the U.S. the “crypto capital of the world,” a stance that aligns with this deregulation move.
What This Means for 401(k) Investors
Financial advisor Philip Chao believes the Labor Department’s move signals to employers they can add crypto to retirement plans “at will and without consequence.” However, he warns that the fiduciary duty under ERISA remains, meaning employers must still act prudently and prioritize investors’ best interests.
Chao notes that while the move isn’t necessarily controversial, it effectively treats crypto like any other asset, despite the lingering concerns about its volatility and lack of regulation.
He acknowledges the Biden guidance faced criticism for singling out crypto, but explains that limited regulation and understanding of the asset class justified extra caution.
Stephen Hall, legal director at financial reform group Better Markets, credited the Biden guidance with protecting millions of investors during the “Crypto Winter” of late 2022, when multiple high-profile collapses triggered a crypto market crash and froze billions in customer funds.
Author’s Opinion
Removing the Biden-era caution on crypto in 401(k) plans seems premature given the volatility and regulatory uncertainty surrounding digital assets. While innovation is important, retirement savings demand prudence and protection. This deregulation risks exposing everyday investors to losses they may not fully understand or afford, undermining the very purpose of retirement plans.
Featured image credit: Marco Verch via CCNull
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