Democrats push Labor Department to scrap crypto 401(k) proposal

Three senior Democratic lawmakers have called on the U.S. Labor Department to withdraw a proposal that could open the country’s roughly $10.1 trillion 401(k) retirement market to cryptocurrencies and other alternative investments.

According to a letter sent Tuesday by Senator Bernie Sanders, Senator Elizabeth Warren, and Representative Bobby Scott, the lawmakers urged acting Labor Secretary Keith Sonderling to rescind the department’s proposal allowing private equity, private credit, digital assets, and similar investments to be offered through retirement plans.

Serving as the ranking members of the Senate Banking Committee, Senate Committee on Health, Education, Labor and Pensions, and House Committee on Education and Workforce, respectively, the lawmakers argued that the policy could expose retirement savers to assets they described as highly volatile and vulnerable to fraud.

In the letter, Sanders, Warren, and Scott said cryptocurrencies lack sufficient investor protections and warned that many digital assets remain susceptible to misconduct due to what they characterized as limited regulatory safeguards.

“The application of securities laws to crypto assets is rapidly evolving, and many securities law protections that investors have for public securities may not be available for crypto. This lack of sufficient guardrails is likely to harm investors.”

Democrats renew opposition to crypto in retirement plans

Tuesday’s letter builds on concerns Warren raised earlier this year after the Labor Department unveiled draft guidance designed to permit alternative assets inside 401(k) plans.

Back in March, the department proposed a framework that would allow retirement plan sponsors to offer investments ranging from private equity and private credit to Bitcoin and other digital assets, provided fiduciaries could demonstrate compliance with ERISA prudence standards involving diversification, liquidity, valuation, fees, and participant understanding.

Labor Department officials said at the time that the proposal was not intended to create unrestricted access to crypto or private markets. Instead, the agency said it sought to replace blanket restrictions with case-by-case reviews conducted by plan fiduciaries.

Under the proposal, retirement plans would not be required to add digital assets or private funds. Employers choosing to offer such investments, however, would need to document detailed due diligence before making them available to participants.

Earlier criticism from Warren cited research from the U.S. Government Accountability Office describing crypto assets as uniquely volatile and difficult to evaluate using traditional forecasting methods. 

In a separate letter reported by CNBC in March, she argued that retirement accounts should serve as long-term financial support rather than vehicles for high-risk investments.

Trump order and ethics concerns remain central

Current opposition from Democrats also targets the policy’s origins within the Trump administration.

The Labor Department’s proposal followed an executive order signed by President Donald Trump on April 30 directing federal agencies to expand access to alternative assets, including cryptocurrencies, within retirement accounts. The order instructed the Labor Department to revisit ERISA guidance while directing the Securities and Exchange Commission to examine pathways for 401(k) investors to gain exposure to alternative investments.

At the time, Labor Secretary Lori Chavez-DeRemer said retirement investment decisions should be left to Americans rather than dictated by the federal government. Administration officials also framed the initiative as part of an effort to increase access to investment options for retirement savers.

Alongside their concerns about investor protection, Sanders, Warren, and Scott questioned whether the proposal could financially benefit individuals connected to the administration. Their letter said President Trump was “rife with conflicts of interest in this area,” citing the Trump family’s involvement with crypto venture World Liberty Financial.

Questions surrounding ethics and conflicts of interest have also surfaced during congressional negotiations over the CLARITY Act, a digital asset market structure bill expected to receive Senate attention in the coming weeks. 

Democratic lawmakers have repeatedly stated they will oppose crypto legislation that does not include provisions addressing ethics and potential conflicts involving public officials.