Rolling the Dice on Crypto
in Retirement Plans By JIM TRUJILLO
As a team of 401(k) advisors focused on participant outcomes, we are constantly fielding financial related questions from employees seeking advice. Lately, one of the main questions asked has been “what do you think about cryptocurrency?” My typical response is to hit them back with a reverse uno card and say, “tell me what you think about cryptocurrency,” because if you’re asking that question, you probably already have some thoughts. My rebuttal is not meant to be stubborn or funny, but rather a simple test. Is your question coming from the hype you’ve heard from your cousin’s, sister in-law who had their gym trainer tell her they made millions from trading bitcoin? My advice on those calls, as you can imagine, is short and sweet. But a good portion of the time, people already understand the major risks in crypto, and are simply interested in learning more. As educators, we prefer the latter. Instead of trying to throw a retirement savings lifeline saying, “I can save you! Just grab this well diversified, long term investment raft,” it’s more “here’s what you should know before you think about jumping into the crypto water.” And here is what we tell them…Cryptocurrency is a currency that is digital, encrypted and decentralized. This means it is held in code, on computers instead of in banks and there is no central body managing the value of it like our government does with the US Dollar. Off to a sketchy sounding start, right? But this way of holding currency is actually what makes it very difficult to hack and introduces us to the term blockchain. Have you ever played that story telling game where one person starts a story, then the next person retells that part then adds a little more to it, then the next person repeats it all back then adds their own part and so on and so on until someone messes up? Blockchain works in a similar way. Imagine every time there is a transaction of crypto, it is being coded or “added to the story.” Then, the next transaction is coded by repeating the whole story, and then adding their portion, and so on, and so on. In 36
www.HRProfessionalsMagazine.com
this case, every person holding that crypto is now part of the story and has their own running copy that is updated every time someone adds to it. So, as you can now imagine, it is incredibly difficult for hackers to go back and change the story without being told by millions of coin holders “nope that’s wrong and now you are out!” A lot of the time people are asking us about Crypto because they want us to make the recommendation to do it, but as a fiduciary, it’s impossible for us to recommend someone invest their hard earned retirement dollars into something so volatile, unregulated and mysterious. And the Department of Labor openly agrees as they have provided specific guidance on this subject in the recently published Compliance Assistance Release No. 2022-1. In the DOL’s guidance, they acknowledge the wave of enthusiasm around crypto and the potential for them to become investment options in 401(k) plans. However, as is sometimes the case with governmental guidance, the DOL has essentially left it up to your discretion to decide if it is a good option for your participants. The guidance asks fiduciaries of retirement plans to remember their main responsibility: act solely in the financial interests of plan participants and adhere to an exacting standard of professional care. In other words, be loyal to the people in the plan and make sure you are protecting them by always doing research and due diligence on everything that is offered. So what happens if you do decide this is a good option for your participants? Our take is that they will hit you with the “I’m not mad at you…just disappointed” type of vibe. But again, they are not wrong for making these suggestions. In our opinion, the DOL’s main concerns are completely valid, and if you’re considering offering crypto in your plan, they should be concerns of yours, as well. For example, as I write this article in May of 2022, Bitcoin has fallen over 50% since its high in November of 2021. It takes a serious steel stomach to be able to handle those types of swings. While that is an extreme variance, it is not uncommon for full percentage point swings to occur up or down very quickly in the crypto world.
