The 2022 CAR (2022-01.pdf) had a chilling effect on adding cryptocurrency investments into participant directed plans. The statements in the CAR that raised the most concern were:

• The Department cautions plan fiduciaries to exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu for plan participants.
• At this early stage in the history of cryptocurrencies, the Department has serious concerns about the prudence of a fiduciary’s decision to expose a 401(k) plan’s participants to direct investments in cryptocurrencies, or other products whose value is tied to cryptocurrencies. These investments present significant risks and challenges to participants’ retirement accounts, including significant risks of fraud, theft, and loss, …
• Based on these and other concerns, EBSA expects to conduct an investigative program aimed at plans that offer participant investments in cryptocurrencies and related products, and to take appropriate action to protect the interests of plan participants and beneficiaries with respect to these investments. The plan fiduciaries responsible for overseeing such investment options or allowing such investments through brokerage windows should expect to be questioned about how they can square their actions with their duties of prudence and loyalty in light of the risks described above.

The primary concerns of private sector attorneys were:

• ERISA does not have a standard of “extreme care” and to suggest otherwise was misleading and obviously chilling.
• The belief among service providers and lawyers who represent retirement plans is that plan fiduciaries are not responsible for investments in brokerage or mutual fund windows. That is, there is not a fiduciary duty to prudently select and monitor the investments in those windows. That belief is justifiable based on prior actions by the EBSA, such as changes made in Field Assistance Bulletin 2012-02R.

In its new CAR (Compliance Assistance Release 2025-01, 2025-01.pdf), the EBSA rescinded the 2022 CAR, saying:

• The 2022 release directed plan fiduciaries to exercise “extreme care before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu for plan participants.” The standard of “extreme care” is not found in the Employee Retirement Income Security Act (ERISA) and differs from ordinary fiduciary principles thereunder.
• Prior to the 2022 release, the Department had usually articulated a neutral approach to particular investment types and strategies. Today’s release restores the Department’s historical approach by neither endorsing, nor disapproving of, plan fiduciaries who conclude that the inclusion of cryptocurrency in a plan’s investment menu is appropriate. When evaluating any particular investment type, a plan fiduciary’s decision should consider all relevant facts and circumstances and will “necessarily be context specific.”
• ERISA itself requires that a fiduciary curate a plan’s investment menu “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims” for the “exclusive purpose” of maximizing risk-adjusted financial returns to the plan’s participants and beneficiaries.

In a nutshell, the new CAR—correctly, in my opinion—eliminates the “extreme care” language and returns to the traditional ERISA standard under the prudent person rule. The new CAR didn’t specifically mention the statement that there would be targeted investigations of participant directed plans about cryptocurrency investments, including in brokerage windows, but it is a safe assumption that the recission effectively covers that as well (at least to the extent it suggested an impending  crypto sweep).

So, where does that leave us?

Cryptocurrency investments are like all other potential investments…subject to the fiduciary standards of care and loyalty. But those duties must be applied in the context of achieving retirement security. That is to say that plan fiduciaries need to decide what role cryptocurrencies will have in the context  of investing for retirement security. Then, if they decide to add cryptocurrency investments, the issue will be competency. For example, what is the competence of the committee members to select and then to monitor cryptocurrency investments. If the fiduciaries lack competency, they will need to engage expert advisors to help with the process.

Realistically, the most likely courses of actions going forward, if cryptocurrencies are to be added to plans, are:

• Inclusion as an allocation in target date funds, where the selection and allocation will be professionally managed.
• Inclusion as allocations in managed accounts, with professional management.
• Inclusion in a brokerage or mutual fund window.

In my view, plan fiduciaries are generally risk-adverse and are unlikely to add stand-alone cryptocurrency investments to the core lineups of their plans. But, as Yogi Berra said:  It’s tough to make predictions, especially about the future.

The material contained in this communication is informational, general in nature and does not constitute legal advice. The material contained in this communication should not be relied upon or used without consulting a lawyer to consider your specific circumstances. This communication was published on the date specified and may not include any changes in the topics, laws, rules or regulations covered. Receipt of this communication does not establish an attorney-client relationship. In some jurisdictions, this communication may be considered attorney advertising.

The views expressed in this article are the views of Fred Reish, and do not necessarily reflect the views of Faegre Drinker.