There is increasing discussion at financial service firms about how they could best provide a relatively safe crypto option in 401(k)s and other employer-sponsored retirement plans.
For instance, Fidelity Investments, one of the largest plan providers, is seeing growing interest in the idea from plan sponsors. “We believe retirement investors increasingly view digital assets, and bitcoin in particular, as an investment worthy of consideration for long-term investing,” said Dave Gray, Fidelity’s head of workplace products and platforms.
But many plans are not there yet. The Plan Sponsor Council of America recently asked its members – employers that sponsor a qualified savings plan – if they were or are considering adding crypto to their menu of investment choices. Only about 2% said yes. “Plan sponsors are overwhelmingly not considering, and will not consider, cryptocurrency a prudent investment option in a retirement plan,” the organization said.
That question was asked soon after a March 10 blog post from an official at the US Department of Labor was published, warning fiduciaries “to exercise extreme caution” before adding a cryptocurrency option to their plans. The Labor Department oversees employer retirement plans to ensure they meet minimum standards of protection for plan participants set by the Employee Retirement Income Security Act, or ERISA.
“At this early stage in the history of cryptocurrencies … [the DOL] has serious concerns about plans’ decisions to expose participants to direct investments in cryptocurrencies or related products, such as NFTs, coins, and crypto assets,” wrote Ali Khawar, acting head of the DOL’s Employee Benefits Security Administration.
While the DOL did not explicitly ban plans from doing so, it said it will investigate any plans offering crypto or related products. “The plan fiduciaries … should expect to be questioned about how they can square their actions with their duties of prudence and loyalty in light of the risks described above.”
If your plan ever does offer crypto, which is an extremely volatile asset class, you might want to proceed with caution. Taking risk, of course, is necessary to generate growth in your retirement savings over time. But you also need to make sure your nest egg is not so exposed to a high-risk asset that your hard-earned savings are at risk of getting wiped out. The risk you take has to be balanced with your time horizon, your risk tolerance and a risk-return analysis of the assets you choose.
One option will soon come to market
A small player in the 401(k) provider universe – ForUsAll – said it will be launching a cryptocurrency investment option for clients in the second quarter of this year.
ForUsAll, which primarily services small- to mid-size employers, said over 120 of its 400 clients to date have signed up for the new option, which will be available to participants through a self-directed account on Coinbase.
While there is extreme volatility in cryptocurrencies and a risk of theft and loss in that space, ForUsAll believes the guardrails it is placing around its crypto option will comply with ERISA standards and allay the Labor Department’s concerns.
For instance, participants may only invest 5% of their current 401(k) balance and 5% of their contributions going forward (as well as 5% of their employer matches) to their crypto account. Participants will get automatic notices whenever the value of their crypto investments exceed 5% of their total 401(k) portfolio. But it will be up to them to decide whether to reallocate.
However, before opening an account, participants must go through ForUsAll’s educational materials about crypto investing and take an interactive quiz to demonstrate that they understand its risks and the importance of not taking excessive bets on crypto with their retirement savings, ForUsAll Chief Investment Officer David Ramirez said.
What’s more, they will only be able to select from a curated list of cryptocurrencies vetted by ForUsAll to ensure they are of institutional investing quality. “There will be nothing overly speculative, such as meme coins like Doge or Shiba Inu,” said Ramirez.
He admits a crypto option may not be right for every employer plan.
“For employers that don’t have employees who are sufficiently sophisticated investors, this may not be appropriate,” he said.
But for those that do, ForUsAll believes its crypto option will provide individuals a safer way to invest in a space where institutions and finance professionals are already investing for both diversification and growth potential.
“It’s designed to be a lot easier to invest in crypto currencies prudently,” Ramirez said.