Investing Plan Assets in Cryptocurrencies

At IAI (Independent Actuaries Inc.) we do not give investment advice, nor are we qualified to do so. However, when setting up a new plan, a common question is “What can I invest my plan assets in?” The simplest response is to direct clients to this IRS webpage and discuss any follow up questions as necessary.

So far, none of my clients have asked about investing plan assets in cryptocurrency. If they did, I would recommend they proceed with extreme caution. Fortunately, the DOL released Compliance Assistance Release No. 2022-01 to help address this issue.

As noted on the IRS webpage linked above, plan fiduciaries are “required to exercise the judgment a prudent investor would use.” Due to the extreme volatility of returns and lack of a regulated environment, it seems very risky to offer cryptocurrency as an investment choice to plan participants. In some cases, there may be additional risk if you forget your password.

While I would recommend extreme caution adding cryptocurrency to a qualified Plan, this does not mean it is forbidden. As an example, I have a client with a Defined Benefit Plan and a 401(k) Plan where they are the only participant. A small portion of the 401(k) Plan assets are invested in cryptocurrency. In this situation I expect there is a strong argument that the cryptocurrency is part of a well-balanced retirement portfolio. There is also decreased fiduciary risk in this situation since there are no participating employees.

As the Compliance Assistance Release notes, many firms are marketing cryptocurrency for 401(k) plans. I find it a positive sign that the DOL has released commentary and is looking further into the issue. While cryptocurrency may provide value in the long run with retirement plans, it is likely best to hold off until further information and guidance is released.

This entry was posted in Cash Balance, Defined Benefit Plans, Defined Contribution, Informational, Plan Design, Retirement Planning, Tax Implications. Bookmark the permalink.

Comments are closed.