Fidelity Investments announced Tuesday that it will offer bitcoin as an investment option in its 401(k) plans by the middle of this year.
It’s a big move given that Fidelity is the largest 401(k) plan provider in the United States, acting as custodian for 23,000 plans, which have 20.4 million participants. In total, those plans represent $2.7 trillion in assets under management.
It is also the first major 401(k) provider to offer cryptocurrency as an investment for retirement savers.
The bitcoin option, however, will only be on offer to participants whose employers have elected to include it in their plan.
Fidelity did not specify how many employers have already signed on. “But we have a number of clients that have committed and a number of others in the evaluation process,” said Dave Gray, Fidelity’s head of workplace platforms and products. He expects to hear from more clients now that Fidelity has publicly announced the news.
Gray also noted that both the committed clients and the interested ones range in terms of size and industry.
How it will work
As with any other investment in a 401(k) plan, participants can elect to direct a portion of their regular savings contributions into what will be known as their digital asset account (DAA) where their bitcoin will be held. They also can elect to transfer money to their DAA from another investment they have within the plan. And they can take distributions from that account.
But limits will be set on how much they can contribute – Fidelity won’t allow any employer to set that limit higher than 20%, Gray said. But employers may set the limit much lower – for example, at 5%. And that limit will also apply to how much money you can transfer into your DAA as a percentage of your 401(k)s total assets.
There will also be a limit set on how frequently one can make “round-trip trades” into or out of the account. “We designed this from the point of view of investors that look at bitcoin as a long-term retirement savings opportunity. It’s not for intraday trading or someone looking to trade on market swings,” Gray said.
There will be a trading fee, which has yet to be announced. And the annual fee for the administration will be between 75 to 90 basis points of the assets in the account – so $75 to $90 for every $10,000. That’s for custody, accounting and administration of the DAA, Gray said.
Fidelity is also providing plan sponsors with materials and tools to educate participants about the risks and volatility inherent in investing in bitcoin.
A warning from the Labor Department
The Department of Labor, which ensures that employer retirement plans meet the minimum standards of protection for participants set by the Employee Retirement Income Security Act, has publicly indicated it is very concerned about the prospect of 401(k) participants being exposed to the extreme volatility of crypto trading.
And it has said it will keep an especially close eye on the plans that do offer cryptocurrencies as an investment option.
With regard to Fidelity’s move specifically, a top DOL official told the Wall Street Journal on Thursday that the department worries it will put Americans’ retirement security at risk. “We have grave concerns with what Fidelity has done,” said Ali Khawar, acting assistant secretary of DOL’s Employee Benefits Security Administration.
In response to DOL guidance on crypto exposure in 401(k) plans published last month, Fidelity has asserted that the DOL overstepped by singling out an investment type and implying that it is imprudent rather than leave that assessment to employers with fiduciary duty for their plans. “The determination of prudence [in investment options] belongs to plan sponsor fiduciaries,” Gray said.
In any case, investing in bitcoin has been and continues to be a wild ride – and anyone saving for retirement should not bet their financial security too heavily on the crypto asset class.
Bitcoin, currently trading just under $40,000, is down nearly 27% in the past 12 months, and is down about 15% this year alone.