Fidelity Investments plans to allow investors to set up a bitcoin account in its 401 (k) s, the first major pension plan provider to do so.
Employees will not be able to start adding cryptocurrencies immediately, but later this year, 23,000 companies that use Fidelity to administer their retirement plans will be able to put bitcoin on the menu. The approval of the nation’s largest pension plan provider suggests that cryptocurrencies are moving more and more towards the mainstream, but it remains to be seen whether employers will accept them as their workers.
Fidelity’s move comes a month after the Ministry of Labor expressed concerns about the inclusion of cryptocurrencies in pension plans. This is also a turbulent moment for the stock market, with the S&P 500 falling nearly 10% this year in part due to rising interest rates. Bitcoin is known to be volatile and has lost more than 40% of its value since its highest level in November.
“We need a diverse range of products and investment solutions for our investors,” said Dave Gray, head of workplace retirement proposals and platforms at the Boston-based company. “We fully expect that cryptocurrency will shape the way future generations think about investing in the short and long term.
Under the plan, Fidelity will allow its customers to allocate up to 20% of their bitcoin savings, although this threshold may be lowered by the plan’s sponsors.
Fidelity’s acceptance of bitcoin may lead to wider acceptance among employers.
The company administers plans with more than 20 million participants and $ 2.7 trillion in assets under administration. Fidelity also has a growing presence in the cryptocurrency business, including a trading and custody platform, launched in 2018, that serves hedge funds and other investors.
Fidelity’s move comes at a time of growing interest in digital currencies. Fidelity estimates that about 80 million individual investors in the United States own or have invested in digital currencies. Some institutional investors, including some university donations in the United States, have reportedly invested in cryptocurrencies or funds that buy them, or taken stakes in companies in the fast-growing industry.
However, significant barriers can block the widespread adoption of bitcoin in menus 401 (k). The U.S. Department of Labor, which regulates company-sponsored retirement plans, issued guidelines on March 10, warning employers to “exercise extreme caution before considering adding a cryptocurrency option to the 401 (k) investment menu,” it said. in a statement from the department.
Employers offering cryptocurrencies should expect regulators’ questions about “how they can reconcile their actions with their prudence and loyalty obligations” under U.S. pension law, the department said.
Ali Hawar, acting assistant secretary of the Ministry of Labor’s Compensation Security Administration, wrote that “at this early stage in the history of cryptocurrencies” the department “has serious concerns about the decisions of the plans to expose participants to direct investments in cryptocurrencies or related products, such as NFT, coins and crypto assets. “
Fidelity, along with various trade groups representing the financial services industry, wrote letters urging the Ministry of Labor to withdraw the guidelines.
Some predict that employers will avoid cryptocurrency in 401 (k) plans.
Michael Kreps, director of Groom Law Group, which specializes in pension law, said the Labor Department’s guidelines may have had a chilling effect on “all the conversations that are happening” with employers about adding cryptocurrency investment to 401 menus ( k). The continuing trend of 401 (k) tax litigation also creates a “huge incentive for employers not to take 401 (k) risks”.
Liu Mingski, president of the Defined Contributory Institutional Investment Association, a research and advocacy organization for investment managers, consultants and others in the 401 (k) industry, said he was unaware of any plans by members of his organization to make available cryptocurrency. “There is too much volatility.”
Companies have shown little interest in allowing their employees to rely on cryptocurrency for their retirement security. About 2% of the 63 employers in a recent U.S. Plan of Sponsorship Council survey said they would consider adding cryptocurrency to their 401 (k) menu.
Employees of companies signing up for the new offer can choose to transfer up to 20% of their account balance to a digital asset account that holds bitcoins and uses Fidelity’s institutional trading and custody platform. Employees can also invest up to 20% of each payroll in bitcoin, although employers may impose lower ceilings.
Participants who invest in bitcoin will encounter pop-ups with cryptographic educational information when logging into their online accounts. When the balance in bitcoin holdings exceeds 20% of the value of the portfolio, the employee will not be able to transfer additional amounts to the account from other investments in the 401 (k) plan; the employee may continue to make contributions to salaries. About 5% or less of the bitcoin account will be held in a short-term money market fund to provide liquidity to facilitate day-to-day transactions. Account fees will be between 0.75% and 0.9%, depending on the client, not counting trading costs.
ForUsAll Inc., a provider of 401 (k), announced last year a deal with the institutional unit of Coinbase Global Inc., a leading cryptocurrency exchange that will allow workers in the plans it administers to invest up to 5% of its 401 (k) ), contributions to bitcoin, ether, lightcoin and others through a self-directed window for digital assets.
Fidelity’s interest in cryptocurrencies began almost a decade ago when Abigail Johnson, now chairman and CEO, began holding weekly in-house meetings to discuss digital assets and blockchain technology. The company began digging for bitcoins in 2015. It later added a link to Coinbase’s retail accounts to track their holdings. In 2020 he opened his own crypto fund for wealthy clients.
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