Labor Department official: ‘We do have concerns’ about adding bitcoin to retirement plans

Acting Assistant Secretary for Employee Benefits Security Ali Khawar joins Yahoo Finance Live to talk about the outlook of incorporating crypto into retirement savings plans, Fidelity adding bitcoin to its 401(k) plans, and federal regulation for digital assets.

Video transcript

BRAD SMITH: Welcome back to Yahoo Finance Live, everyone. Is centralized finance further legitimizing cryptocurrency? Goldman Sachs just offered its first Bitcoin-backed loan. The bank lent cash to a client and use that client's Bitcoin as collateral. This move comes as more and more Wall Street banks are embracing crypto in some form.

Goldman just started offering crypto options trading. BlackRock joined a $400 million funding round in the stablecoin firm Circle. And Jefferies is expanding banking services for crypto clients. Will these moves motivate the government to finally start issuing some regulation to the crypto market? We're going to keep you up to date as things progress. Rachelle.

RACHELLE AKUFFO: Well, Brad, just a day after Fidelity Investments announced plans to have the option of adding crypto to 401(k) retirement plans, the Labor Department says not so fast. Well, for more on this, let's bring in Ali Khawar, Acting Assistant Secretary for Employee Benefit Security and Yahoo Finance's own Crypto Reporter Jen Schonberger, welcome to you both.

So, Ali, you've said, we've had grave concerns with what fidelity has done. Break down those concerns.

ALI KHAWAR: Yeah, thanks for having me. So we issued some guidance several weeks ago that laid out a series of concerns that we have. And the concerns are really about cryptocurrency at this stage in its development as an asset class. There are concerns that we have about how you value cryptocurrency, concerns about custodial issues, concerns about some of the difficulties that consumers have in separating the wheat from the chaff, so to speak, in addition to the fact that the regulatory landscape itself is changing pretty-- is going to need to change pretty dramatically as this asset class matures. There's all of those things. And then, of course, there's the well-known fact that you often hear about, which is the volatility of many cryptocurrencies.

JENNIFER SCHONBERGER: Ali, Jennifer Schonberger here. Thanks so much for doing this. I understand your concerns about whether Bitcoin or crypto is a prudent asset class to invest in for retirement, given the volatility, given the concerns you just laid out. But you or the Labor Department don't have plans to ban 401(k)s from offering Bitcoin, do you?

ALI KHAWAR: No. And that's not what we did in the guidance that we issued. We were quite clear that it's not a bat. Ultimately, the way that the decisions are supposed to work here-- there are individuals called fiduciaries. They're responsible for making decisions on behalf of the retirement savers. And the goal of the guidance is really to illustrate for those individuals as they're making these decisions, the importance of keeping their obligations to act in the participant's best interest, really, at the forefront, and some of the reasons that they should be concerned before they too quickly enter into this particular asset.

JENNIFER SCHONBERGER: So then how much of your concerns right now are tethered to the fact that this is a emerging asset class? It has runway before it matures and, perhaps, some of that volatility shakes out. What would ease your concerns? You talked some of the fiduciary responsibility there-- Fidelity says that employers want to offer this, especially given that employees are already investing in digital assets on their own. And Fidelity says that they offer consumer protections, like educational resources, or investment limits, and employer oversight.

ALI KHAWAR: Yeah. So let me maybe take your question in two parts. So the first part, what is it going to take for us to become comfortable? Again, this is an evolving landscape.

And I think our guidance is really viewed as a point in time issue. At this point in time, we do have concerns. But as the regulatory landscape evolves, as some of the volatility goes away, as some of the hype is replaced by kind of fundamentals, I think our concerns will change. And I don't think our guidance should be viewed as kind of the permanent state of the Department of Labor's view.

In terms of employers and what they're thinking-- employers, if they think, having read our guidance and being aware of our concerns, that they think they have a way to deal with those things, they're allowed to do that. That is the way our statute is structured. We do have these concerns, though, and we are going to be asking when we find out about employers making this available on an investment lineup, how exactly they think that they've dealt with these concerns at this point in time.

The concern that we have comes from not really a question of whether people are buying or are interested in buying Bitcoin, but the fact that these are assets that people are supposed to be saving for their old age. And it really is that fact that is, I think, critical to keep in mind.

RACHELLE AKUFFO: Now, we do know that the Biden administration is still investigating, obviously, the risks and opportunities that do come with crypto. So then, given that we don't have any sort of finite classifications as to how crypto is classified, let alone how it's regulated, how do companies, then, navigate this space?

ALI KHAWAR: Yeah, so one of the things that we've been engaged with industry on, prior to our guidance and since it's come out, is to better understand how they think they can deal with these concerns. And as those conversations evolve, I think, again, we might consider future guidance laying that out. But I will tell you at this point, we're not really comfortable and we haven't seen that use case that we think works, which is why we felt an obligation to put guidance like this out that we would caution people before they jumped on the bandwagon, so to speak.

JENNIFER SCHONBERGER: So then, Ali, what types of rules or regulations would you like to see put in place that would kind of ease the landscape for you?

ALI KHAWAR: So we're part of a working group across the administration that is looking at these issues. And as I'm sure you know, the president issued an executive order I think about a month ago that directed the Department of the Treasury, the Department of Labor, a number of other parts of the executive branch to look at these issues and report back on some of these very questions-- you know, what does a regulatory framework that protects consumers, that allows for responsible innovation-- what does that look like so that we can start taking the important steps that are needed to establishing American leadership on these issues?

RACHELLE AKUFFO: So then as you attempt to establish that, I know you said that you were waiting for some of the volatility to die out-- do you have an indication, based on how we've now seen Bitcoin, move versus when it came in first as a currency, versus now we're seeing it a more aligned with equities-- do we have a sense when we might actually see that volatility cool off?

ALI KHAWAR: You know, I'm not sure. But I will tell you that when we talk to institutional investors, they're not at this point-- we were talking about one example of one institutional and large financial institution earlier. But there are a number of financial institutions that don't view this asset class as mature. I would point you to comments that Vanguard made just in the last few days about the speculative nature of Bitcoin in particular right now.

As things change, we stand ready to revisit some of these issues. But I will just observe, I think right now, Bitcoin is about 40% down of where it was something like six months ago. So I don't think we're at a stage where I would say that volatility has really disappeared.

RACHELLE AKUFFO: We do thank you for joining us this afternoon-- Ali Khawar, the Acting Assistant Secretary for Employee Benefits Security, and Yahoo Finance's own crypto reporter, Jen Schonberger. Thank you both so much.