ARTICLE
9 June 2025

Crypto In And ESG Out—DOL Changes To 401(k) Plan Governance

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A&O Shearman

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A&O Shearman was formed in 2024 via the merger of two historic firms, Allen & Overy and Shearman & Sterling. With nearly 4,000 lawyers globally, we are equally fluent in English law, U.S. law and the laws of the world’s most dynamic markets. This combination creates a new kind of law firm, one built to achieve unparalleled outcomes for our clients on their most complex, multijurisdictional matters – everywhere in the world. A firm that advises at the forefront of the forces changing the current of global business and that is unrivalled in its global strength. Our clients benefit from the collective experience of teams who work with many of the world’s most influential companies and institutions, and have a history of precedent-setting innovations. Together our lawyers advise more than a third of NYSE-listed businesses, a fifth of the NASDAQ and a notable proportion of the London Stock Exchange, the Euronext, Euronext Paris and the Tokyo and Hong Kong Stock Exchanges.
Regardless, plan fiduciaries should remain wary of using ESG as a determinative factor in 401(k) plan investment options.
United States Technology

The U.S. Department of Labor (DOL) recently announced two significant changes to 401(k) plan investments, signaling an increase in latitude for fiduciaries who wish to make available cryptocurrency investments in their plans while decreasing that latitude with respect to environmental, social, and governance (ESG) investments.1

ESG investments

In connection with ongoing litigation, the Department of Justice (DOJ) stated that the DOL has determined that current ESG rules issued by the Biden administration's DOL will soon be replaced by new rulemaking to be issued by the Trump administration's DOL.2 In attempting to avoid a "chill" on ESG investing, the Biden-era rule made it easier for 401(k) fiduciaries to offer ESG investments in 401(k) plans by clarifying that ESG factors may be relevant when a fiduciary conducts a risk and reward analysis. In addition, the rule eliminated previous documentary requirements issued by the Trump administration that applied when a fiduciary used ESG collateral factors as a tie-breaker when choosing between two investment options with otherwise identical pecuniary factors.3 Since its release, this rule has been the subject of extensive ongoing litigation. On May 28, 2025, the DOJ requested that the Fifth Circuit suspend ongoing proceedings regarding the matter based on the DOL's determination that they will be overturning the rule in their Spring 2025 Regulatory Agenda. The DOL further noted that it "intend[s] to move through the rulemaking process as expeditiously as possible." It is unclear whether the DOL will revert to the rule promulgated under the first Trump administration or issue something new.4 Regardless, plan fiduciaries should remain wary of using ESG as a determinative factor in 401(k) plan investment options.

Crypto investment options

In 2022, the Biden administration-led DOL published a release advising extreme caution before adding crypto investments to 401(k) alternatives for plan participants.5 In this release, the DOL emphasized the ERISA-mandated fiduciary duties of prudence and loyalty, which the DOL, at that time, thought could be breached by investments in the emerging crypto market due to volatile liquidity, elevated risk, and lack of regulation. In addition to cautioning plan fiduciaries, the 2022 release informed plan fiduciaries of an investigative program targeted towards plans offering participants investments in cryptocurrency. The new DOL guidance, released May 28, 2025, states that the DOL seeks to return to its "neutral approach" regarding investment types and strategies, while at the same time advising plan fiduciaries to consider all relevant facts and circumstances when evaluating plan options. Consistent with the Trump administration's generally favorable attitude towards cryptocurrency, the release rescinds the 2022 guidance infull, thus providing comfort to plan fiduciaries who wish to offer cryptocurrency as an alternative in their plan investments. It is worth noting that, while both the 2022 and 2025 release specifically address cryptocurrencies, the guidance applies more broadly to digital assets including tokens, coins, crypto assets and others.

The recent announcements on ESG and cryptocurrency highlight that changes in administration can result in significant changes to 401(k) plan governance. As a result, plan fiduciaries considering either ESG or cryptocurrency should remain cautious and continually monitor developments in this area.

Footnotes

1. "401(k) Plan Investments in "Cryptocurrencies," Compliance Assistance Release No. 2025-01 (May 28, 2025).

2. State of Utah v. Chavez-DeRemer, Docket No. 23-11097 (5th Cir. Oct 30, 2023), Court Docket.

3. "Final Rule on Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights," U.S. Department of Labor (November 22, 2022).

4. See Note 3.

5. "401(k) Plan Investments in "Cryptocurrencies," Compliance Assistance Release No. 2022-01 (March 10, 2022).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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