The U.S. Department of Labor has submitted to the White House the final fiduciary-duty safe-harbor rule that would provide legal protection for including crypto assets such as Bitcoin, private equity and real estate as investment options in 401(k) retirement plans. Publication in the Federal Register is imminent.
The U.S. Department of Labor (DOL) has formally submitted to the Office of Information and Regulatory Affairs (OIRA), under the White House Office of Management and Budget (OMB), its final rule establishing a fiduciary-duty safe harbor that would open the door to including alternative assets such as Bitcoin (BTC) and other crypto assets, private equity (PE) and real estate in defined-contribution (DC) retirement plans including 401(k)s. OIRA review is generally the final review gate in a federal agency’s administrative rulemaking process, and, barring significant disqualifying issues, the rule is expected to be published as final in the Federal Register within weeks.
The core of the final rule is to shield pension asset managers and employers (plan sponsors) from the risk of damages lawsuits under the U.S. Employee Retirement Income Security Act (ERISA) when adding alternative assets to employee retirement menus. The Labor Department specifies an exemption standard under which a fiduciary would be legally presumed to have fulfilled its duty of prudence if, in advance, it reasonably evaluates and verifies six key criteria: ▲ past and projected investment performance (Performance), ▲ investment and management fees (Fees), ▲ the speed at which assets can be converted to cash and their liquidity (Liquidity), ▲ fair-value assessment methodology (Valuation), ▲ appropriate comparison benchmarks (Benchmarking), and ▲ the complexity and underlying risks of the product structure (Complexity).
As a result, the Labor Department’s conservative administrative guidance—which over the past several years had warned of the extreme volatility and speculative nature of crypto assets and effectively discouraged their use—is expected to be officially withdrawn, significantly expanding the flexibility of institutional asset managers in designing retirement products. The market expects the roughly $12 trillion to $15 trillion in U.S. 401(k) assets to be more likely to flow into alternative assets through allocations of a certain percentage—5% to 20%—of target-date funds (TDFs) or multi-asset portfolios, rather than through direct trading by individuals. If the safe-harbor provision formally takes effect, competition among major retirement providers, including Fidelity and BlackRock, to launch on-chain and alternative-asset-based retirement plans is expected to accelerate.