Throw out 401(k) crypto guidance lawsuit, DOL asks federal court

The U.S. Department of Labor has asked a federal judge to throw out a lawsuit challenging its 401(k) cryptocurrency investment guidance, saying the March memo isn’t necessarily final and that plan provider ForUsAll Inc. lacks standing.

The subregulatory guidance “does not have the force of law nor does it create new law,” the government argued in its dismissal motion Monday in the U.S. District Court for the District of Columbia.

The DOL’s Employee Benefits Security Administration sparked a long-running controversy this year by telling pension plan sponsors they could face an “investigative program” if they allowed digital currencies in their employment plans. Since then, the benefits agency has cracked down on plan providers such as ForUsAll and money manager giant Fidelity Investments Inc. that are eager to capitalize on crypto enthusiasm.

ForUsAll, a low-cost 401(k) recordkeeping firm based in San Francisco, filed suit against the department in June, arguing that regulators violated their statutory authority by enacting a policy change without going through the required notice and comment process.

In its motion Monday, the agency said its guidance (CAR No. 2022-01) reiterates duties that retiree administrators already have under the Employee Retirement Income Security Act of 1974 (Pub.L. 93-406).

The legal framework gives EBSA the authority to interpret how a fiduciary’s duty of care and loyalty to plan participants applies within the context of a modern and evolving investment industry that markets risky products, the department argued. ERISA also gives the agency the power to investigate plan sponsors to make sure they are honoring the agreement.

“Plan administrators are free to structure 401(k) plans as they see fit as long as their actions conform to the statutory duty of care, and Department policymakers are free to pursue investigations or entertain enforcement actions in exactly the same manner as they could prior to the release’s publication », argued the government in the movement’s supporting memorandum.

The nature of the guidance “anticipates further agency action,” the memo said. Even if it did not, the release constitutes an “interpretive rule,” which is obviously not subject to the notice and comment requirements of the Administrative Procedure Act (Pub.L. 404-79).

‘Doubtful’ predictions

ForUSAll is the nation’s first 401(k) plan provider to market a cryptocurrency product tailored for workplace retirement plans. In the June complaint, the company said it stood to lose up to a third of its potential customer base because of EBSA’s guidance.

The department said Monday that the “questionable” potential for lost business was speculative at best and would be due to the decisions of its third-party plan sponsor clients, not the benefits agency that issued the guidance.

“There is no dispute that regardless of the release, the Department may investigate the actions of plan managers, including the offering of cryptocurrency investment options, and initiate appropriate enforcement actions,” the department said. “ForUsAll only speculates that an order invalidating the release will have any impact on these third parties’ decisions not to offer ForUsAll’s cryptocurrency investment options.”

Attorneys for the company or company spokespeople did not immediately respond to requests for comment.

The case is ForUsAll Inc. v. US Dep’t of Labor et al, DDC, No. 1:22-cv-01551, motion to dismiss filed 9/12/22.