New Senate Bill Would Protect Crypto 401(k) Investments | Fisher Phillips

After feds fired a swipe across the arc of the crypto world by heavily criticizing the practice of including cryptocurrency as a 401(k) investment option, a new proposal presented to the US Senate last week latest retaliated and aims to protect such a right. The Financial Freedom Act (S. 4147), introduced May 5 by Sen. Tommy Tuberville (R-AL), would prohibit the Department of Labor from restricting the types of investments workers can invest in through their brokerage accounts self-directed like 401(k)s – and would pave the way for retirement investors to put cryptocurrency in their nest egg. What should employers know about this latest development?

The Ministry of Labor fires its first shot

USDOL battled with the crypto world in March when he issued a strong and direct warning that including cryptocurrency in a 401(k) plan could go against existing standards. The agency noted that “extreme caution” should be exercised before adding such an option to a 401(k) plan’s investment menu for plan participants.

While the USDOL Benefits Security Administration’s warning does not amount to an explicit ban, it made it clear that trustees considering including cryptocurrencies in 401 menu options (k) should conduct a thorough assessment before offering the crypto – and should expect an EBSA investigation if they decide to include such an offer. It certainly had a chilling effect on the practice – and employers were waiting for industry’s response.

New Senate Bill Responds In Kind

The government’s first official response came last week when Senator Tuberville introduced the Financial Freedom Act. As noted, it aims to protect sponsors from regulatory scrutiny and allows investors to choose their own path when it comes to crypto investments. If passed, it would amend federal employee benefits law to ensure that trustees are allowed to select “any particular type of investment alternative” for their menu of options – provided that they offer the 401(k) participant the ability to choose from a wide range of investment alternatives. . It would also ensure that no particular type of investment is considered “favoured or disadvantaged” for any reason other than its risk-return characteristics – a clear shield for cryptocurrency in light of the recent announcement of USDOL.

Further, it prohibits USDOL from issuing any regulations or guidelines that limit or prohibit the range or type of investments that may be offered through a typical brokerage window.

“The Biden administration has taken it upon itself to dictate which assets are considered worthy of retirement investment,” Tuberville said in an announcement accompanying the bill’s introduction, “removing the decision from individual investors by releasing regulatory guidelines targeting cryptocurrency.This is government self-transcendence at its finest.

And after?

The bill was tabled on May 5 and immediately referred to the Health, Education, Labor and Pensions Committee. At the moment, he has no co-sponsors and seems unlikely to gain traction in the current Congress. Additionally, it is unlikely at this time that the Federal Employee Benefits Act (ERISA) will be changed so broadly in a cryptocurrency dispute. After all, as written, the Financial Freedom Act would go far beyond protecting crypto investments.

But the good news for employers is that it keeps the conversation going. This is a clear signal that some members of Congress and the wider business community favor greater flexibility when it comes to using cryptocurrency as an investment vehicle. We expect this won’t be the last we hear of this debate, and anticipate that this particular bill could be reconsidered if there is a leadership change in Congress in 2023.

Norman D. Briggs