The answer is still unclear. In a March commentary discouraging Employee Retirement Income Security Act (ERISA) plan fiduciaries from allowing cryptocurrency investments, the Department of Labor cited the Supreme Court’s decision in Hughes, underscoring that fiduciaries cannot allow any imprudent investment options and strongly suggesting that a cryptocurrency option would not be appropriate.
Since brokerage windows could be used to circumvent designated investment options, the department further cautioned that a plan fiduciary permitting investments in cryptocurrency through a brokerage window should be ready to explain how such a decision was consistent with duties of prudence and loyalty under ERISA, Berio LeBeau said.
“The DOL’s statement that plan fiduciaries could be responsible for the prudence of investment choices made through a brokerage window suggests that fiduciaries retain an undefined level of fiduciary responsibility for the investment of all plan assets, regardless of how participants make their investment directions,” she added.
While the guidance was directed at cryptocurrency, the underlying policy is not necessarily limited to digital assets, the attorneys said.
“The principles supporting the Supreme Court’s decision in Hughes lend credence to the DOL’s suggestion,” said Barry Salkin, another partner at Wagner. “If fiduciaries are responsible for the prudence of all available investment options—whether there are 10, 50 or 500—it stands to reason that there may be some level of fiduciary responsibility with respect to offered brokerage windows.”
Now the question is when, whether and how the DOL or the federal courts develop standards for plan fiduciaries to apply when designing and monitoring individual account plans with brokerage windows, Salkin said.
“Fiduciaries seeking to use brokerage windows to both limit fiduciary responsibility for vetting investment alternatives and expand available investment opportunities should consider approaching brokerage window design as a fiduciary act and carefully design rules and safeguards mindful of legal requirements and considering participant demographics, interests and needs,” he said.
“Approaching brokerage window design as a fiduciary act is not an admission that fiduciary duties apply,” the attorneys argued.
But since the DOL has not defined the parameters of responsibility, fiduciaries who exercise their duties of prudence and loyalty in designing brokerage window rules “should be ahead of the game and poised to demonstrate compliance as fiduciary standards unfold in light of Hughes and developing DOL policy,” Salkin added.