Crypto in 401(k)s Poses Oversight Challenges Due to Lack of Data

The Department of Labor lacks the data necessary to oversee the small but potentially growing prevalence of cryptocurrency holdings in tax-advantaged retirement accounts like 401(k)s, according to a forthcoming report by the Government Accountability Office.

DOL’s Employee Benefits Security Administration doesn’t collect “comprehensive data” needed to determine whether plan holders are including crypto in their retirement savings, according to a draft copy of the report exclusively obtained by Bloomberg Tax. This blind spot hinders “DOL’s ability to isolate investments in crypto assets,” which the agency has warned against including in workplace-sponsored retirement plans due to their volatility, the report said.

“As a result, certain crypto assets continue to trade in markets that do not have investor protections or comprehensive oversight,” said GAO, a nonpartisan agency that provides Congress and federal agencies with independent analyses of government operations.

EBSA is considering changes to the disclosures plan that retirement fund administrators must fill out that could provide the transparency the watchdog suggested, it told GAO.

Savers have historically been shielded from cryptocurrencies’ volatility and potential for manipulation given their current limited inclusion in the multitrillion-dollar retirement market.

But a recent Securities and Exchange Commission decision allowing several US exchanges to list spot bitcoin funds may allow Wall Street-backed bitcoin-linked products to be offered in investors’ personal retirement savings vehicles or workplace 401(k)s. Savers who are further from retirement and willing to trade financial risk for potential gains may be especially interested in crypto funds.

Rep. Richard Neal (Mass.), the top Democrat on the tax-writing House Ways and Means Committee, commissioned the study. Neal said the report “shows there’s more to do to protect American workers and their retirement savings from the volatile, high-risk environment that comes with cryptocurrencies.”

“As markets evolve and new investing vehicles emerge, it is incumbent on the federal government to ensure proper oversight,” he said in a statement to Bloomberg Tax. The crypto market “has not been fully subjected to proper oversight and regulation. As a result, as this report outlines, it has brought uniquely high risk to retirees.”