Compliance March 10, 2022

DOL Compliance Notice Warns Against Crypto Risks

The DOL’s Compliance Assistance Release No. 2022-01 urges plan fiduciaries to exercise ‘extreme care’ before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu.

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The U.S. Department of Labor on Thursday published compliance assistance for 401(k) plan fiduciaries considering plan investments in cryptocurrencies.

According to the DOL’s announcement, formally referred to as Compliance Assistance Release No. 2022-01, the goal of the compliance assistance  is to protect the retirement savings of U.S. workers from extreme volatility and legal risks.

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Published by the DOL’s Employee Benefits Security Administration, the compliance assistance cautions plan fiduciaries to exercise “extreme care” before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu for plan participants. As the EBSA points out, the Employee Retirement Income Security Act of 1974 requires plan fiduciaries to act solely in the financial interests of plan participants and adhere to the standards of professional care in considering investment options for participants in 401(k) plans.

“Today’s announcement reminds plan fiduciaries of their important role in selecting investment options for 401(k) plan menus,” says Employee Benefits Security Administration Acting Assistant Secretary Ali Khawar. “At this stage of cryptocurrency’s development, fiduciaries must exercise extreme care before including direct investment options in cryptocurrency.”

The full text of the release, available here, is complemented by an informal blog post published by Khawar. In the release, the EBSA says cryptocurrencies tend to be too speculative and volatile investments to serve a meaningful purpose in tax-qualified retirement plans. As the release explains, at this stage in their development, cryptocurrencies have been subject to extreme price volatility, which may be due to the many uncertainties associated with valuing these assets. Other issues cited by the EBSA include the speculative conduct of crypto market participants and the security risks demonstrated by widely published incidents of theft and fraud.

The EBSA says cryptocurrencies are often promoted as innovative investments that offer investors unique potential for outsized profits. As such, the EBSA says, these investments can all too easily attract investments from inexpert plan participants with great expectations of high returns and little appreciation of the risks the investments pose to their retirement investments. The release emphasizes that cryptocurrencies are very different from typical retirement plan investments, and it can be extraordinarily difficult, even for expert investors, to evaluate these assets and separate the facts from the hype.

Other concerns cited by the EBSA relate to custodial and recordkeeping considerations, which are extremely important in the ERISA fiduciary context. The EBSA says cryptocurrencies are not held like traditional plan assets in trust or custodial accounts, nor are they readily valued compared with other assets or available to pay benefits and plan expenses. With some cryptocurrencies, EBSA warns, simply losing or forgetting a password can result in the loss of the asset forever, while other methods of holding cryptocurrencies can be vulnerable to hackers and theft.

According to the EBSA, the rules and regulations governing the cryptocurrency markets may be evolving, and some market participants may be operating outside of existing regulatory frameworks or not complying with them. Fiduciaries who are considering whether to include a cryptocurrency investment option will have to include in their analysis how regulatory requirements may apply to issuance, investments, trading or other activities and how those regulatory requirements might affect investments by participants in 401(k) plans.

To this end, the EBSA cites a theoretical example wherein the sale of some cryptocurrencies could constitute the unlawful sale of securities in unregistered transactions. Plan fiduciaries must take care to avoid participating in unlawful transactions, exposing themselves to liability and plan participants to the risks of inadequate disclosures and the loss of investor protections that are guaranteed under the securities laws.

Data & Research March 10, 2022

Advisers Can Help Women Add to Growing Retirement Confidence

Women are adjusting their approach to finances and value advisers who will listen to them.

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Women are showing more confidence about their retirement readiness and in managing their finances, amidst the ongoing pandemic, according to research from two financial institutions.

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For many women, the onset of the COVID-19 pandemic changed how they view finances. Many are feeling more confident managing their money, the Nationwide Retirement Institute’s Advisor Authority study found. The Women and Wealth Insights Research from U.S. Bank also finds that women have gained confidence when it comes to managing their finances.   

The Nationwide survey shows that women with investable assets of $100,000 or more who are primary or shared decision-makers regarding financial planning are pivoting to approach finances more proactively and want help with strategies to reach financial goals.  

Many women investors have learned lessons from living though COVID-19, states Ann Bair, senior vice president for marketing, Nationwide Financial. “After experiencing the upheaval of these events, from market volatility to juggling childcare during remote learning, women are being more proactive in thinking about and planning for their futures,” she says.

About half of women investors indicated the Crash of 2008 (50%) and COVID-19 recession (48%) were two major financial crises that impacted how they approach finances and investments. Profound events such as these have led many women investors to start thinking further ahead about their financial futures, adjusting their approach to managing their personal finances by taking actions such as proactively starting a “rainy day” or emergency fund (23%) or establishing and following a budget (21%).

Women have already demonstrated a stronger likelihood than men to make better long-term decisions when facing financial crises, according to Nationwide’s study. For example, fewer women investors (8%) than male investors (15%) liquidated assets from qualified retirement savings plans to cover financial obligations in response to crises that had a profound impact on them.

Many women have made great strides towards retirement readiness. Accumulating sufficient savings for retirement has specific challenges for women because of the gender pay gap disparity, lower career earnings and time spent out of the workforce for childbirth and caregiving.

The survey found that 72% of women investors have a strategy to protect themselves from outliving savings, 83% have a strategy to generate guaranteed income in retirement and 59% have a strategy to help protect assets against market risk. Additionally, due to experiencing firsthand how market volatility can significantly impact their portfolio, 68% of women investors will more conservatively revise their investing strategy, and 73% will revise their investing strategy to be more actively managed.

The 2022 U.S. Bank study was completed almost two years into the COVID-19 pandemic and shows some large differences from 2020. The survey found that women and men are experiencing greater confidence in their ability to fund future financial needs. U.S. Bank found that 36% of women and 37% of men said this in 2022, compared to 23% of women and 34% of men in 2020.

Seeking Help

The Nationwide survey also shows that two-thirds of women investors work with an adviser (64%), and the main reason they do so is to feel more confident in their financial future (40%).

Advisers have an opportunity to help women look deeply into their finances and to plan, states Lori Hall, director of strategic accounts for Nationwide Financial. “Advisers and financial professionals can help women understand what they can expect from strategies they currently have in place and think about other factors that may impact retirement income, including when they collect Social Security, health care costs, inflation, market volatility and taxes,” she says. “This can help identify gaps in their plan that may be addressed through new solutions.”

When women investors were asked what would make them more likely to work with, or influenced them to work with, an adviser or financial professional, an adviser’s experience (41%) was the most common factor. Ninety-two percent of those that currently work with an adviser or financial professional say that it helps them feel more confident they can make the right investment decisions, even during an extreme financial crisis.

In the U.S. Bank survey, the majority of Generation Z and Millennial women prioritize working with a financial provider who has a strong workplace equality/diversity rating, supports gender equality in the workplace, and supports international human rights. Meanwhile, Baby Boomer women highly value (88%) a financial adviser who takes the time to listen to them.

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