The rapid rise of cryptocurrency as an investment option has created significant challenges for retirement plan fiduciaries operating under the Employee Retirement Income Security Act (ERISA). Recent litigation and regulatory guidance, particularly the landmark ForUsAll case, have highlighted the complex interplay between traditional fiduciary duties and these novel digital assets. This comprehensive analysis examines how plan fiduciaries can navigate their legal obligations when considering cryptocurrency options for retirement plans.
The ForUsAll Decision: A Watershed Moment for Crypto in Retirement Plans
The case of ForUsAll, Inc. v. United States Department of Labor represents a pivotal development in defining how fiduciaries must approach cryptocurrency investments in retirement plans. It reflects growing legal attention toward irrevocable cryptocurrency transactions and consumer protection challenges that plan sponsors must consider.
Background of the Case
ForUsAll, a retirement plan provider, challenged Department of Labor (DOL) guidance that expressed serious concerns about including cryptocurrency options in defined contribution retirement plans. The company argued that the DOL had overstepped its authority by effectively prohibiting cryptocurrency investments without following proper rulemaking procedures.
The Court's Key Holdings
- The court confirmed that the DOL guidance did not create new legal obligations beyond existing ERISA fiduciary duties
- It established that fiduciaries must demonstrate how offering cryptocurrency options aligns with their duties of prudence and loyalty
- The ruling acknowledged that cryptocurrency offerings are not categorically prohibited
- Fiduciary duties apply to all investments, including those offered through brokerage windows
The Prudence Requirement: Careful Evaluation in Uncharted Territory
The Statutory Framework
Under ERISA, fiduciaries must act with the care, skill, prudence, and diligence that a prudent expert would use. This “prudent expert” rule poses difficulties with cryptocurrency, a space where many fiduciaries have limited experience. When handling digital assets, understanding what is virtual currency becomes essential for fiduciaries assessing new risks.
Prudence in Practice: The Cryptocurrency Context
- Thorough due diligence of the digital asset
- Volatility and risk assessment
- Custody of assets to protect against potential virtual theft and real losses
- Monitoring regulatory developments
- Establishing valuation methodologies
Because cryptocurrency poses significant risks, documentation becomes essential for any fiduciary defending their investment decisions.
Documentation as a Shield
- Expert consultations and risk analysis
- Ongoing monitoring and participant education
- Clear internal records and procedures
The Loyalty Obligation: Participant Interests Above All
Exclusive Benefit Rule
Fiduciaries must act solely in participants' interests. This means avoiding conflicts like personal enthusiasm for crypto or pressure from tech-savvy participants. Plan design must center on participant retirement goals, not external agendas.
Balancing Interests in Diversified Plans
Fiduciaries must assess how virtual currency investments serve or threaten participants with differing levels of financial literacy or time horizons. Offering crypto in a retirement context demands proactive disclosure and tailored education.
Brokerage Windows: A Special Consideration
What Are Brokerage Windows?
These allow access to a broad range of investments outside the core plan offerings. But fiduciaries are still responsible for oversight, even within these self-directed options.
The ForUsAll Clarification
- Monitor brokerage window providers
- Evaluate cryptocurrency as an appropriate asset class
- Implement transparency around risk and availability
Practical Implications for Window Design
- Decide explicitly whether to allow crypto
- Set clear monitoring procedures
- Educate participants on potential pitfalls
Personal Liability: The Stakes for Fiduciaries
Statutory Liability Framework
Under ERISA, fiduciaries are personally liable for losses caused by duty breaches. This includes restoring lost assets and being subject to legal or regulatory action.
Cryptocurrency's Heightened Risk Profile
The extreme volatility of cryptocurrencies and their susceptibility to fraud and cyber attacks amplify liability exposure. Fiduciaries who fail to meet legal standards risk lawsuits and enforcement actions.
DOL Guidance: Navigating Regulatory Expectations
The DOL's Stated Concerns
- Extreme price volatility
- Valuation difficulty
- Custodial risks
- Fraud and theft potential
These concerns echo many issues addressed in discussions on irrevocable cryptocurrency transactions and consumer protection challenges.
Expected Documentation and Diligence
Fiduciaries should be able to demonstrate consideration of DOL concerns, sound expert consultation, and robust participant education. This aligns with principles outlined in our comprehensive guide to what is virtual currency.
Practical Strategies: Implementing a Defensible Approach
Graduated Implementation
- Start with regulated crypto-related ETFs
- Set initial exposure limits
- Expand cautiously with market maturity
Robust Participant Education
- Explain blockchain basics and crypto volatility
- Include historical context and allocation advice
- Clarify tax and regulatory implications
Expert Committee Involvement
- Form a crypto-focused subcommittee
- Ensure clear accountability and documentation
Cryptocurrency Retirement Plan Compliance and ERISA Attorneys in California
At Bulldog Law, our experienced California attorneys help fiduciaries, plan sponsors, and retirement administrators navigate the legal complexities of cryptocurrency in retirement plans. We provide strategic legal guidance to ensure compliance with ERISA standards while supporting innovation in plan design. Contact us today for tailored legal advice that protects your plan and your participants.