Despite strong opposition from some of the most powerful members of Congress and Department of Labor, which oversees 401(k) plans, Fidelity is still preparing to offer the option to invest in cryptocurrency on some employer-sponsored retirement plans by the end of the year.
The Fidelity Digital Asset Accounts will give employers the choice to allow participants to invest up to 20% of their accounts in bitcoin. The April 26 announcement listed MicroStrategy, a software-developer-turned-bitcoin-investment-firm, as the first client signed up.
Read more: Amid Regulatory Grumbling, Fidelity Tests Waters for Bitcoin Holdings in 401(K) Plans
There are several ways to invest in cryptocurrencies with individual retirement account (IRA) funds, most notably Grayscale Investments’ various crypto trusts, through several FinTechs, and exchange-traded funds (ETFs) that invest in bitcoin futures, including ProShares, Valkyrie and VanEck. But 401(k) funds are still off limits.
Similarly, bitcoin spot ETFs, which invest in actual bitcoins rather than futures, are still banned by the Securities and Exchange Commission (SEC), whose chairman, Gary Gensler, considers market manipulation too easy and prevalent. They would likely be a preferable investment choice for the average retirement investors Fidelity is chasing; someone who might not be as eager to invest in derivatives just to get exposure to the cryptocurrency.
See more: As New Crypto ETFs Continue to Spread Across Europe, the SEC Stands Fast in Opposition
It probably doesn’t help that those three bitcoin futures ETFs are all at least 70% off their highs.
Hard Labor
How likely it is that either option will become available soon is something of a question.
Fidelity told news site 401k Specialist July 29 that it “continues to have strong interest for digital assets and the blockchain… In fact, client interest has not only been strong, but also spans across a wide range of industries and company sizes. We are on track to launch our first plan sponsor clients this fall.”
The company added in the report that it is “proud of the Digital Assets Account as a responsible solution to meet the demands of mainstream interest.”
On the other hand, the Labor Department has been less than subtle about its opinion of adding crypto to 401(k) retirement plans.
Read more: Labor Department Urges Caution on Crypto Retirement Plans
Cautioning plan fiduciaries to “exercise extreme care” when considering offering crypto investment options, the department warned in March that “fiduciaries may not shift responsibility to plan participants to identify and avoid imprudent investment options, but rather must evaluate the designated investment alternatives made available to participants and take appropriate measures to ensure that they are prudent … The failure to remove imprudent investment options is a breach of duty.”
As a fiduciary’s duties include considering whether a crypto investment option meets those “exacting responsibilities,” the department pointedly noted that “fiduciaries who breach those duties are personally liable for any losses to the plan resulting from that breach.”
However, that warning received a lot of pushback, with industry groups including the American Bankers Association and the Securities Industry and Financial Markets Association calling on the agency to rescind its guidance, Politico reported.
And Fidelity has been pretty clear that it intends to flout the guidance, Bloomberg Law reported in May.
At that point, Gensler’s stand against spot bitcoin ETFs will start becoming harder to support, even though the justification, market manipulation concerns, remains. But if someone can buy bitcoin — and presumably other cryptocurrencies soon enough — with a 401(k), what’s the point of withholding IRA-friendly ETFs?
Just Say No
Aside from the Labor Department, a fair number of powerful Democrats have blasted Fidelity’s decision. In June, a lawmaker from the mutual fund giant’s home state, Rep. Richard Neal, asked the General Accounting Office to investigate the risks of 401(k) crypto investments “due to their volatility and limited oversight.”
Neal is chairman of the powerful House Ways and Means Committee, from which all tax bills (i.e. the ability of the government to pay for anything) emerge. On the Senate side, Majority Whip Dick Durbin — the No. 3 Democrat in the upper house — joined perennial crypto opponent Sen. Elizabeth Warren and Sen. Tina Smith in asking “why Fidelity, a trusted name in the retirement industry, would allow plan sponsors the ability to offer plan participants exposure to bitcoin.”
Calling the decision “immensely troubling,” the trio said in late July that “it seems ill-advised for one of the leading names in the world of finance to endorse the use of such a volatile, illiquid and speculative asset in 401(k) plans, which are supposed to be retirement savings vehicles defined by consistent contributions and steady returns over time.”
On the other side, Sen. Tommy Tuberville introduced legislation that would “prohibit the [Labor Department] from issuing guidance limiting the range or type of investments 401(k) savers can select.”
Saying that the average retiree will have worked about 133,000 hours, Tuberville explained, “If someone in Lamar County, Alabama, is getting up at the crack of dawn — clocking 14 hours at work — knows their retirement goals and personal circumstances very well, who better to decide how to invest the money they are making? Who better to decide but them?”
Durbin, Warren and Smith had a different perspective.
“Working families’ retirement accounts are no place to experiment with unregulated asset classes that have yet to demonstrate their value over time,” they said.
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