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1 1 (July 1, 2022)

handle is hein.crs/govehye0001 and id is 1 raw text is: Congressional Research Service nforming th legislative I i ba sin ce 1914 Cryptocurrency in 40 1(k) Retirement Plans Digital assets, which include cryptocurrencies, crypto- assets, or digital tokens, among others, are digital representations of value and are issued and transferred using distributed ledger or blockchain technology. Bitcoin, Ethereum, and Dogecoin are among the most well-known cryptocurrencies. A November 2021 Pew Research Center and a March 2022 NBC News poll found that around one- fifth of Americans indicated that they had invested, traded, or otherwise used cryptocurrency. In recent months, policymakers have paid increasing attention to the prospect of defined contribution (DC) pension plan participants being able to invest in cryptocurrency. While some contend that cryptocurrency in retirement accounts could benefit participants, others have expressed concern about its appropriateness as an investment option. Defined Contribution Plan Investments In DC plans, of which the 401(k) is the most common in the private sector, workers are provided individual accounts funded by their own contributions, contributions from their employers, or both. The funds in the account may accrue investment earnings, which can then be used as a source of income in retirement. Most DC plans are participant- directed individual account plans. In these plans, plan sponsors (which are usually the employers in 401(k) plans) choose a number of investment options from the offerings of a financial services company, such as the Vanguard Group, Fidelity Investments, or BlackRock. Participants in participant-directed DC plans then choose their investments from among the options that plan sponsors have made available. The investment options usually include mutual funds with varying characteristics such as index funds (which mirror the performance of a stock market index such as the S&P500), small and large cap funds (which invest in small or large firms as measured by market capitalization), bond funds (which invest in debt obligations), real estate funds (which invest in real estate), and target date funds (which change the investment mix between bonds and stocks as an individual gets closer to retirement). In addition to mutual fund investments, about one-quarter of private-sector DC plans allow participants to invest via a brokerage window. A brokerage window allows plan participants to invest in options beyond those provided by the plan, such as individual stocks and a wide variety of mutual funds. Some plans place restrictions on participants' investments within brokerage windows, such as limiting the percentage of an individual's account balance that can be invested in the brokerage window or prohibiting investments in the stock of the employee's company. Cryptocurrency in Private-Sector DC Plans Until recently, cryptocurrency was not available as an investment option for DC plan participants. In 2021, FORUSALL announced that it would be the first financial services company to offer plan sponsors the option to adopt cryptocurrency as an investment for participants. Participants whose plan sponsors adopt FORUSALL's investment platform can invest up to 5% of their account balances and direct 5% of their contributions to cryptocurrency through its brokerage window. In April 2022, Fidelity announced its intention to allow 401(k) participants whose plan sponsors adopt it as an investment option to invest up to 20% of their account balances in Bitcoin. Fiducdary Chokes Most of the investment options provided by a plan sponsor in participant-directed plans are designated investment alternatives, which Department of Labor (DOL) regulations define as an investment alternative designated by the plan into which participants and beneficiaries may direct the investment of assets held in, or contributed to, their individual accounts. When making decisions about which designated investment alternatives to include in a plan, plan sponsors are fiduciaries under the Employee Retirement Income Security Act of 1974 (ERISA, P.L. 93-406) and must act with prudence (with the care, skill, prudence, and diligence that a prudent person would take) and with loyalty (solely in the interest of the participants for the purpose of providing benefits). In addition, fiduciaries have an ongoing duty to monitor plan investments to ensure they continue to satisfy fiduciary obligations. Plan sponsors' fiduciary responsibilities regarding digital currency in retirement plans may depend on the channel through which the investment choice is offered to participants. For example, while Fidelity is offering plan sponsors the choice to include digital asset investments as part of their investment menus (alongside mutual funds, for example), FORUSALL is offering digital asset investments through its brokerage window. While plan sponsors have a duty of prudence and loyalty when choosing the designated investment alternatives to be included in their plans, these duties do not necessarily apply to the investments that participants choose in a brokerage window. DOL regulations specifically exclude brokerage windows from the definition of designated investment alternatives. In 2012, DOL issued guidance that indicated that plan sponsors might have an obligation to treat an investment in a brokerage window as a designated investment alternative if a certain number of participants selected it. However, three months later, DOL removed that guidance. July 1, 2022

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