The U.S. Department of Labor (DOL) in March issued a controversial warning to 401(k) plan fiduciaries to "exercise extreme caution" before considering adding cryptocurrencies to a retirement plan's investment menu. Today, the agency is being sued for doing so.
California-based 401(k) provider ForUsAll filed suit against the DOL in Washington, D.C., on Thursday, claiming the agency violated the Administrative Procedure Act (APA) by issuing guidance without following proper procedures. Those procedures, ForUsAll argued, would have required the guidance to go through a time-consuming notice and comment period.
The DOL skipped this because it feared the impact of Super Bowl commercials encouraging investors to invest their retirement savings in cryptocurrencies and hastily issued the guide before that event, the plaintiff argued.
In addition to deviating from due process, ForUsAll claims that the DOL's "arbitrary and capricious" warning about cryptocurrencies and threat of an "investigative program" against plans offering such investments could set a "troubling precedent for future announcements by an administration about what investments are permissible."
"The DOL plays several important roles serving American workers - but 'armchair financial advisor' should not be one of them," ForUsAll CEO Jeff Schulte said in a statement provided to CoinDesk. "Congress has never given 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 actions without a public process."
The lawsuit also referenced President Joe Biden's Executive Order (EO) on crypto, which was released a day before the DOL guidance. The White House directive called on various federal agencies - including the DOL and Treasury - to collaborate on a government-wide approach to regulating cryptocurrencies.
"No other federal agency has responded to the Executive Order in this way," said ForUsAll, which also noted the EO's call to "encourage" the development and use of cryptocurrencies.
ForUsAll claims to have suffered damages as a result of the DOL guidance, and the lawsuit asks the court to vacate and set aside the DOL's crypto guidance, prevent the DOL from implementing it, and pursue investigations outside the permitted scope.
David Ramirez, chief investment officer of ForUsAll, told CoinDesk that the company received inquiries from more than 150 companies following the announcement of its crypto 401(k) offering last June.
"However, since the Department of Labor's announcement that they are launching an enforcement initiative targeting companies that add a crypto option to their plan menu, we have spoken with a number of clients - and of those we have spoken with, about a third have decided to delay providing crypto investments to their employees as a direct result of the DOL threats," Ramirez said.