Less Than 1% of DC Plan Investments Allocated to Crypto Usage
A recent report by the U.S. Government Accountability Office (GAO) took a deep dive into the world of cryptocurrencies in 401(k) retirement plans and examined how federal regulators can safeguard retirement savings against the high volatility of digital assets.
According to the GAO’s findings, the current utilization of cryptocurrencies in retirement plans remains quite low, with less than 1% of defined contribution (DC) plans investing in crypto. However, regulators have issued warnings about the significant risks associated with this type of investment.
The report highlighted that individuals who allocate larger portions of their savings to cryptocurrencies may experience increased volatility. In fact, the GAO’s simulation revealed that a substantial allocation (20 percent) to bitcoin, the cryptocurrency with the longest price history, could lead to greater volatility compared to smaller allocations (1 and 5 percent).
In addition, the GAO raised concerns about the lack of federal oversight when it comes to cryptocurrencies in 401(k) accounts. Current fiduciary data provided to the Department of Labor (DOL) often lacks detailed reporting on plans with fewer than 100 participants, leaving some investors out of the reporting picture. Even plans with more than 100 participants aggregate some investment data, making it challenging to identify crypto assets within the plans for regulatory purposes.
The lack of concrete data, coupled with the uncertainty surrounding crypto investments, poses limitations on federal oversight and management of digital assets. Rep. Richard Neal (D-MA) emphasized the need for proper regulation in response to the report, citing the unique risks that cryptocurrencies pose to retirees’ investments.
While the DOL has advised fiduciaries to be cautious when considering cryptocurrencies in retirement plans, it does not mandate monitoring of all investment options in accordance with ERISA, including investments made through self-directed brokerage windows. This means that participants who choose to invest in cryptocurrencies outside of their plans’ offerings may bear the responsibility of monitoring these investments.
Despite efforts by the DOL to enhance data collection, proposed legislation to assign a federal regulator to oversee crypto assets or identify risks associated with them through federal agencies like the Federal Reserve has not yet been enacted.
In conclusion, while the usage of cryptocurrencies in 401(k) plans remains relatively low, the risks associated with these investments cannot be understated. It is crucial for investors to fully understand the volatility and lack of regulation in the crypto market before considering it as a viable option for retirement savings.
