Fidelity will soon offer bitcoin as an option in 401(k)s 2022-04-26 12:18:24

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It’s a big step considering Fidelity is the largest 401(k) plan provider in the United States, serving as a trustee on 23,000 plans, which has 20.4 million participants. In total, these plans represent $2.7 trillion in assets under management.

It is also the first major 401(k) provider to offer cryptocurrency as an investment to retired savers.

However, the bitcoin option will only be offered to participants whose employers have chosen to include it in their plan.

Fidelity did not specify the number of employers have already signed on. “But we have a number of committed customers and a number others in the assessment process,” said Dave Gray, president of workplace platforms and products at Fidelity. He expects to hear more customers now that Fidelity has announced the news publicly.

Gray also noted that both committed and interested clients vary in size and industry.

how will you work

As with any other investment in a 401(k) plan, participants can choose to direct a portion of their regular savings contributions to what will be known as a Digital Asset Account (DAA) where their bitcoin will be held. They can also choose to transfer money to the DAA from another investment they have under the plan. And they can take distributions from this account.

But limits will be placed on the amount of contribution – Fidelity will not allow any employer to set this limit higher than 20%, Gray She said. But employers may set the minimum – for example, at 5%. This limit will also apply to the amount of money you can transfer to the DAA as a percentage of your total 401(k) assets.

There will also be a certain limit on the number of times one can make “round trip deals” inside or outside the account. “We designed this from the point of view of investors who view bitcoin as a long-term retirement savings opportunity. It is not for day trading or for someone looking to trade in market volatility,” Gray said.

There will be trading fees that have not yet been announced. The annual management fee will range from 75 to 90 basis points for the assets in the account – that’s $75 to $90 for every $10,000. This is for preservation, accounting, and the administration of the DAA, Gray said.

Fidelity also provides plan sponsors with materials and tools to educate participants about the risks and volatility inherent in investing in Bitcoin.

Warning from the Ministry of Labour

The Department of Labor, which ensures that employers’ retirement plans meet minimum protection standards for participants set by the Employee Income Security Act, has publicly indicated that it is deeply concerned about the potential for 401(k) participants to be subject to extreme volatility. of cryptocurrency trading.

She said she will closely monitor plans that offer cryptocurrency as an investment option.

Fidelity asserts that the Department of Labor has gone overboard by specifying the type of investment and stating that it is unwise rather than leaving that assessment to employers who have a fiduciary duty to their plans. “The insistence of prudence [in investment options] belongs to the plan’s sponsors,” Gray said.

In any case, investing in bitcoin has been and still is an uphill journey — and anyone saving for retirement should not bet their financial security too hard on the crypto asset class.

Bitcoin, which is currently trading at less than $40,000, is down about 27% in the past 12 months, and down about 15% this year alone.

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