Fidelity to Allow Retirement Savers to Put Bitcoin in 401(k) Accounts 2022-04-26 09:43:00

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Fidelity Investments plans to allow investors to place a Bitcoin account in their 401(k)s, the first major retirement plan provider to do so.

Staff will not be able to start Add cryptocurrencies to their nest eggs Right away, but later this year, 23,000 companies using Fidelity to manage their retirement plans will have the option to put bitcoin on the list. The endorsement of the country’s largest retirement plan provider suggests investing in cryptocurrency Advancing in the mainstreamHowever, it remains to be seen if employers will accept this for their workers.

Fidelity’s move comes a month after the Labor Department expressed concerns about including cryptocurrency in its retirement plans. It’s also a file Uncomfortable time for the stock marketThe S&P 500 is down nearly 10% this year, in part due to high interest rates. Bitcoin famous for volatility It has lost more than 40% of its value since its highest level in November.

“There is a need for a diverse range of investment products and solutions for our investors,” said Dave Gray, head of workplace retirement offerings and platforms at the Boston-based company. “We fully anticipate that cryptocurrency will shape the way future generations think about investing in the short and long term.”

WSJ’s Dion Rabouin explains why Wall Street is now betting so heavily on cryptocurrencies and what this means for the new asset class and its future. Composite photo: Elizabeth Smiloff

Under the plan, Fidelity will allow savers to allocate up to 20% of their nest eggs to Bitcoin, although this threshold can be lowered by the plan’s sponsors. Mr. Gray said he will be limited to bitcoin initially, but expects to have other digital assets available in the future.

Investing in cryptocurrency has been virtually non-existent in 401(k) plans until now. A small company that provides services for smaller 401(k) plans allows employees of some of the plans it operates to invest up to 5% of their 401(k) contributions in bitcoin and some other cryptocurrency.

Fidelity’s adoption of bitcoin may lead to broader acceptance among employers.

“We have seen increased and organic interest from clients,” particularly those with younger employees, said Mr. Gray, adding that “there are a number in the assessment process” from a wide range of industries.

The company manages plans with more than 20 million participants and $2.7 trillion in assets under management. Sincerity too It has a growing presence in the cryptocurrency fieldIncluding a trading and custody platform it launched in 2018 that serves hedge funds and other seasoned investors.

Fidelity’s move comes at a time The growing interest in digital currencies. Fidelity estimates that about 80 million individual American investors own or invest in cryptocurrencies. Some institutional investors, including some US university endowments, are said to have invested in cryptocurrencies or buy-in funds, or taken stakes in companies in the fast-growing industry.

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However, significant hurdles could prevent the widespread adoption of Bitcoin in 401(k) listings. The U.S. Department of Labor, which regulates company-sponsored retirement plans, published guidance on March 10 warning employers to “use extreme caution before they consider adding a cryptocurrency option to their 401(k) plan investment list,” a department news release said. .

The department said employers offering cryptocurrency should expect regulators to ask “how their actions align their duties with wisdom and loyalty” under US pension law.

“At this early stage in the history of cryptocurrency,” Ali Khawar, acting assistant secretary for the Employee Benefits Security Department at the Ministry of Labor, wrote. serious concerns About plans decisions to expose participants to direct investments in cryptocurrency or related products, such as NFTs, coins, and crypto assets.”

Fidelity, along with various trade groups representing the financial services industry, has written letters asking the Department of Labor to withdraw the guidance, according to Mr Gray and industry lawyers.

Some expect employers to avoid cryptocurrency in their 401(k) plans.

Michael Krebs, a director at Groom Law Group who specializes in pension law, said the Department of Labor guidance would likely have a chilling effect on “any conversations that were taking place” with employers regarding adding cryptocurrency investments to their 401(k) lists. He said the ongoing trend in 401(k) fee litigation creates “a significant incentive for employers not to take risks with a 401(k)”.

Vanguard Group, Fidelity’s main competitor, says it has “no plans to offer a cryptocurrency option within its 401(k) plans,” according to a spokesperson. As the cryptocurrency is highly speculative in its current state, Vanguard believes its long-term investment case is weak.

Lou Minsky, president of the Institutional Specific Contributing Investment Association, a research and advocacy organization for investment managers, consultants, and others in the 401(k) industry, said he was not aware of any plans by members of his foundation to make cryptocurrency available. “There’s a lot of volatility,” he said.

Companies have shown little interest in letting their employees rely on cryptocurrency to secure their retirement. About 2% of the 63 employers in a recent survey conducted by the Planned Parenthood Council of America said they would consider adding cryptocurrency to their 401(k) list.

Proponents of adding a small dose of cryptocurrency to the wallet say it can raise expected returns without increasing overall risk. Some believe that cryptocurrency can act as a hedge against inflation.

Mr. Gray said employees of companies that signed up for the new offer can choose to transfer up to 20% of their account balances to a digital asset account that holds bitcoin and uses Fidelity’s institutional custody and trading platform. Employees can also invest up to 20% of each payroll contribution in bitcoin, although employers can impose lower caps.

Participants who invest in bitcoin will encounter pop-up boxes containing educational information about cryptocurrencies when logging into their online accounts. When the balance in bitcoin holdings exceeds 20% of the value of the wallet, the employee will not be able to transfer additional amounts to the account from other investments in the 401(k) plan; The employee can continue to make contributions to the payroll. About 5% or less of the bitcoin account will be held in a short-term money market fund to provide liquidity to facilitate daily transactions. Mr. Gray said the fee on the account would be between 0.75% and 0.9%, depending on the client, not including trading costs.

Fidelity declined to say if it has plans to incorporate digital assets into its target funds. These funds act as virtual investments for employees who are automatically enrolled in 401(k) plans and attract the lion’s share of new contributions.

ForUsAll Inc. , 401(k) presenter, Announce last year’s agreement With the institutional arm

Coinbase Global company ,

A leading cryptocurrency exchange, it will allow workers with plans it manages to invest up to 5% of their 401(k) contributions in bitcoin, ether, litecoin and more via a self-directed digital asset window. Founded in 2012, ForUsAll provides automated 401(k) management, slates of low-cost mutual funds, and access to human advisors.

Fidelity’s interest in cryptocurrencies began nearly a decade ago, when Abigail Johnson, the current Chairman and CEO, began holding weekly internal meetings to discuss digital assets and blockchain technology. The company began mining bitcoin in 2015. Later, it added a link on retail customer accounts to Coinbase, the cryptocurrency exchange, to track their holdings. In 2020, she opened her own crypto fund for wealthy clients.

write to Anne Targsen in anne.tergesen@wsj.com

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