Department of Labor (DOL) watchers have experienced regulatory whiplash in recent years. During the Biden administration, for example, the DOL issued Compliance Assistance Release (CAR) No. 2022-01, which flouted its previously professed policy of neutrality regarding the types of investments chosen by plan fiduciaries. Instead, the CAR clearly aimed to chill the adoption of cryptocurrencies and digital assets as investment options in plans.
In May 2025, the DOL reversed course by rescinding the CAR. As Trump-appointed Secretary of Labor Lori Chavez-DeRemer put it, “The Biden administration’s department of labor made a choice to put their thumb on the scale. We’re rolling back this overreach and making it clear that investment decisions should be made by fiduciaries, not D.C. bureaucrats.” The reversal set the law back to neutral. Indeed, ERISA does not on its face favor any particular investments.
On August 7, the Trump administration went further, in effect promoting alternative assets as a class of investments for 401(k)s by means of an executive order, “Democratizing Access to Alternative Assets for 401(k) Investors.” Among other things, the executive order directs the DOL to clarify its position on alternative assets including digital assets, Further, it directs the DOL to determine what appropriate fiduciary process would be associated with offering asset allocation funds containing those assets. It does not, however, change the law and the foundational duties of a fiduciary under ERISA.
Fiduciaries must still discharge their duties with the “care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in like capacity and familiar with such matters” would use in conducting a similar enterprise. Rather than a prescriptive list of rules, ERISA imposes duties of loyalty, prudence, and diversification in the selection of investments. This is likely because, even on basic tenets of retirement planning, investment professionals often widely disagree on what is an appropriate strategy for retirement investing. Some favor modern portfolio theory, which emphasizes a diverse portfolio; but many quite different alternatives are in the mix (e.g., factor-based investing, behavioral portfolio theory, risk parity, and post-modern portfolio theory). Inasmuch as theories come in and out of favor, ERISA has never been construed to mandate a single path for prudence. Rather, ERISA and related case law establish a principles-based approach for fiduciaries in selecting investments based on (a) the procedures used by a fiduciary in approving an investment for inclusion on a plan’s investment menu and (b) the circumstances at the time the decision was made.
The now-rescinded CAR cautioned fiduciaries to use “extreme care” prior to adding cryptocurrency to plan menus. It pointed to several aspects of cryptocurrency that created “apprehension” for the DOL, including:
- The volatility and speculative nature of cryptocurrencies
- Plan participants not having enough understanding to make informed investment decisions
- Custodial and record-keeping concerns
- Valuation concerns
- The lack of a cohesive regulatory framework
The DOL also added that it would be opening investigations where sponsors allowed crypto investments in their plans.Although the concerns expressed by the DOL at the time of the CAR are valid, rescinding the CAR will facilitate a more balanced evaluation by fiduciaries that the Supreme Court described in Hughes v. Northwestern University. There, the court recognized that the DOL’s historic position has been that “plan fiduciaries are required to conduct their own independent evaluation to determine which investments may be prudently included in the plan’s menu of options.” The court further resolved a split among the circuits by making clear that each designated investment alternative should be evaluated individually, such that the availability of one or more prudent alternatives does not excuse any imprudent alternative.
Rescinding the CAR restores a more neutral stance to the regulatory environment. However, this does not mean that fiduciaries will be clamoring for cryptocurrencies and other digital assets as designated investment alternatives (DIAs) for their plans. Based on fiduciary duties and the volatility of most cryptocurrencies alone, prudent fiduciaries often will hesitate to allow such investments in a plan lineup. Fiduciaries can be personally liable for losses where the selection and monitoring of investments are deemed to have been imprudent.
There may, however, be more room for cryptocurrencies in self-directed brokerage options (SDBOs). Even there, it may be necessary or advisable for fiduciaries to attach some guardrails. An SDBO allows investment in non-menu stocks, funds, bonds, etc. The CAR intimated that sponsors might have liability for crypto investments made via self-directed brokerage windows. This is the opposite of how SDBO windows are viewed. The fiduciary decision is generally considered to be whether it is prudent to offer the window in toto as a DIA. If the underlying assets are considered part of the plan menu, the fiduciary could often face the nearly impossible task of assessing the prudence of the hundreds of choices that such windows commonly make available. It will be interesting to see how self-directed brokerage evolves given the popularity of cryptocurrency.
The CAR also stood in contrast to the DOL’s previous position per Field Assistance Bulletin No. 2012-02R. There, the DOL did not consider the underlying investments in a self-directed brokerage account to be DIAs, i.e., part of the plan menu, which would require plan-level disclosures. Instead, it considered the disclosure obligation to cover the self-directed brokerage window as a whole. To date, no court has opined that the underlying investments of a self-directed brokerage window are DIAs subject to prudent selection and monitoring by the plan sponsor.
Regardless of the intent of any changes that result from the executive order, it remains unclear whether any action the DOL takes will prove to have much practical impact on the conduct of fiduciaries. They will continue to do their duty, hire experts, review investments with prudent processes, and make determinations based on facts and circumstances.
