U.S. Department of Labor Faces Scrutiny on Bitcoin 401(k) Plans

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U.S. Department of Labor Faces Pushback Over 401(k) Bitcoin Plans
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The U.S. Department of Labor is receiving objections from an industry initiative to revoke previous guidance on including cryptocurrencies in 401(k) plans.

The Council on Crypto Innovation (CCI), backed by Coinbase and Block, has asked the U.S. Department of Labor to withdraw guidance previously issued in March warning consumers of the dangers of allocating crypto to 401(k) plans. Specifically, the sector is facing scrutiny for focusing too much on the risks of cryptocurrencies and ignoring its benefits.

Fight for 401(k) freedom

The U.S. Department of Labor initially expressed concerns about including cryptocurrencies in 401(k) plans in March.

Ali Khawar, acting assistant secretary of the U.S. Department of Labor, told the Wall Street Journal at the time that the Department of Labor “is concerned about the program’s decision to allow participants to invest directly in cryptocurrencies or related products, such as NFTs, coins, and cryptoassets.”

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The first retirement provider to draw blood was Fidelity Investments in April, which already offers retirement plans to 23,000 companies. It also announced that it would create “digital asset” accounts in its 401(k) plan.

Fidelity’s statement drew an immediate backlash from the Labor Department, which expressed “grave concern” about Fidelity’s actions and suggested that companies offering 401(k) plans look forward to investigating how they would “comparison their actions to their prudence and prudence.” Loyalty responsibilities combined.”

Enter CCI, an industry group backed by Coinbase, the largest U.S. cryptocurrency exchange, and Jack Dorsey’s payments company Block (formerly Square).

The industry group has made it clear that it wants the Labor Department to rescind guidance it issued in March and provide retirement plan managers with protections from breach of duty claims.

“[The Department of Labor] A narrow view of the risks of cryptocurrencies while ignoring their potential benefits, including growth and portfolio diversification. As with any other type of investment option, plan trustees must consider both the risks and potential benefits of cryptocurrencies,” said Sheila Warren, CEO of Barron’s CCI.

The CCI also claimed that the Department of Labor’s comments were inconsistent with an executive order issued by President Joe Biden in March that required different departments to study cryptocurrencies and present their findings.

Republicans are also getting involved. In May, Sen. Tommy Tuberville (R-Ala) introduced the Financial Freedom Act, which would limit the Labor Department’s power to decide which investments retirees can participate in.

DOL has two important allies in battle

However, the department has gained two allies — Sen. Elizabeth Warren (D-Mass.) and Sen. Tina Smith (D-Minn.), a prominent crypto critic. The two senators wrote a letter to Fidelity asking why the company ignored guidance from the Labor Department in March and how the company would mitigate risks associated with bitcoin.

In response, Fidelity pledged to continue the dialogue with lawmakers, as it has done with all of its new products. Fidelity plans to launch digital asset allocation in 2023, allowing investors to allocate up to 20% of their portfolio to digital asset accounts.

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