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The U.S. Department of Labor (DOL) in March issued a controversial warning to 401(k) plan fiduciaries to “exercise extreme care” before considering adding cryptocurrencies to a retirement plan’s investment menu. Today, the agency is being sued for it.
California-based 401(k) provider ForUsAll filed suit against the DOL in the U.S. District Court in Washington, D.C., on Thursday, alleging the agency violated the Administrative Procedure Act (APA) by issuing guidance without following the correct procedures. Those procedures, argued ForUsAll, would have required the guidance to go through a time-consuming notice and comment period.
The DOL skipped that step because it feared the impact of Super Bowl commercials that encouraged investors to put their retirement savings into crypto, and hurried the guidance out ahead of that event, alleged the plaintiff.
Aside from deviating from the proper procedure, ForUsAll claims the DOL’s “arbitrary and capricious” warning against crypto and threat of an “investigative program” against plans that offer such investments could set a “concerning precedent for future announcements by any Administration about what investments are permissible.”
“The DOL plays several important roles that serve American workers — but ‘armchair financial adviser’ shouldn’t be one of them,” said ForUsAll CEO Jeff Schulte in a statement provided to CoinDesk. “Congress never gave government officials the power to pick winners and losers, let alone the legal authority to arbitrarily restrict entire asset classes. And it certainly never authorized agencies to take such sweeping and abrupt action with no public process.”
The suit also pointed to President Joe Biden’s executive order (EO) on crypto, released one day before the DOL’s guidance. The White House directive urged various federal agencies – the DOL and Treasury Department among them – to collaborate on a whole-of-government approach to cryptocurrency regulation.
“No other federal department or agency has responded to the Executive Order in this fashion,” said ForUsAll, which also noted the EO's call to “promote” the development and use of cryptocurrency.
ForUsAll claims to have suffered damages as a result of the DOL’s guidance, and the suit asks the court to vacate and set aside the DOL’s crypto guidance, to prevent the DOL from acting to implement it, and from pursuing investigations outside its allowed scope.
ForUsAll Chief Investment Officer David Ramirez, told CoinDesk the company had received inquiries from more than 150 businesses after the announcement of its crypto 401(k) offering last June.
“However, since the Department of Labor announced that they are launching an enforcement initiative targeting businesses that add a crypto option to their plan menu, we have spoken with a number of clients — and of those we spoke with, roughly one-third have decided to delay making crypto investments available to their employees, as a direct result of the DOL’s threats,” Ramirez said.
Read the full complaint here.
UPDATE (June 2, 2022 14:25 UTC): Adds the name of the court in which the complaint was filed and a link to the full complaint.