A “meritless” lawsuit seeking to vacate the Department of Labor’s cryptocurrency guidance for 401(k) plan fiduciaries should be dismissed, the agency said in a court filing.
ForUsAll Inc., a 401(k) plan administrator that offers cryptocurrency to participants through a self-directed brokerage window, filed a lawsuit in June in U.S. District Court in Washington, alleging that the Labor Department’s guidance is “arbitrary and capricious” and violated the Administrative Procedure Act.
The Labor Department filed a motion Monday to dismiss the case.
At issue is Labor Department guidance published in March for 401(k) plan fiduciaries telling them to “exercise extreme care” before selecting cryptocurrency as an investment option in plan menus. Fiduciaries who include such investment options or who allow such investments through self-directed brokerage accounts “should expect to be questioned about how they can square their actions with their duties of prudence and loyalty in light of” potential risks associated with cryptocurrencies, the guidance said referring to ERISA’s requirements.
ForUsAll took issue with several aspects of the guidance, including the Labor Department’s use of “extreme care,” which its lawsuit said was “heretofore unseen in the nearly 50-year history of ERISA,” and its focus “exclusively on the risks of cryptocurrency, without mention of its potential benefits, including diversification.”
In its filing Monday, the Labor Department said the case should be dismissed for several reasons, including ForUsAll lacking standing to challenge the guidance because it hasn’t alleged the guidance has caused it harm or that vacating the guidance “would remedy this alleged injury.”
Also, the department said its guidance “does not constitute final agency action” on the crypto issue, nor is it required to submit interpretative rules and general agency policy statements to public notice and comment under the Administrative Procedure Act.
The department said there is no allegation that it “has relied upon the (guidance) in initiating investigations or in moving forward with any enforcement actions.”
Moreover, “Plan fiduciaries remain free to structure 401(k) plans however they see fit so long as their actions comport with the statutory duty of prudence, and the department decisionmakers remain free to pursue investigations or entertain enforcement actions in exactly the same way they could prior to the (guidance’s) publication,” the department said.
ForUsAll did not immediately respond to a request for comment.
In its guidance, the Labor Department spelled out some concerns it has with incorporating crypto assets in participants’ retirement accounts. Doing so presents “significant risks of fraud, theft, and loss,” the guidance said. The risks exist because cryptocurrencies are speculative and volatile investments; pose custodial and record-keeping challenges; present valuation concerns; and contend with an evolving regulatory environment, the department added.
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