401(k) Fiduciaries Face Litigation Risk After $2T Crypto Wipeout
Plan sponsors who embraced the DOL’s 2025 ‘neutral’ stance on crypto are now exposed to ERISA litigation following a historic market crash.
The $2 trillion market rout this week has done more than vaporize portfolio value; it has likely shattered the liability shield for retirement plan sponsors who embraced digital assets. Plan fiduciaries, emboldened by the Department of Labor’s (DOL) pivot to neutrality last year, now face a renewed legal minefield as ERISA attorneys scrutinize whether offering volatile tokens breached the duty of prudence.
The Regulatory Trap
The timing of the crash is legally catastrophic. In May 2025, the DOL formally rescinded its contentious 2022 guidance, which had urged “extreme care” regarding crypto, and reverted to a “neutral” stance. That reversal, widely interpreted as a green light by providers like Fidelity, shifted the burden of due diligence entirely back to plan sponsors.
Sponsors who interpreted “neutrality” as “safety” are now exposed. While the DOL removed the explicit warning label, it did not alter ERISA’s core mandate: fiduciaries must act solely in the financial interest of participants. A 40% drawdown in a retirement vehicle effectively hands plaintiff attorneys a prima facie case for imprudence, particularly for plans that aggressively marketed crypto allocations to near-retirees.
The DOL’s 2025 pivot removed the red tape, but it didn’t remove the risk. Fiduciaries effectively traded regulatory clarity for litigation exposure.
Institutional Fallout
The original 2022 warning from the DOL specifically cited “extreme volatility” as a disqualifying risk factor for 401(k) menus. This week’s price action, where major assets shed billions in hours, validates that initial caution and undermines the 2025 argument that crypto behaves like standard asset classes.
Labor lawyers are already flagging the disconnect. The rescission of the 2022 guidance allows fiduciaries to consider crypto, but the scale of this week’s losses tests the limits of the “prudent man” rule. If sponsors cannot demonstrate a rigorous, independent analysis that justified holding spot crypto through a systemic collapse, they risk class-action lawsuits similar to those seen after the 2022 cycle, but with higher stakes due to the broader adoption encouraged by the Trump administration’s deregulatory push.
Unless the market stabilizes, the DOL may be forced to revisit its stance, not by choice, but by the volume of participant losses.
