Senators Demand Answers from Fidelity Over Plan to Allow Bitcoin As Part of 401(k) Accounts

Two senators are raising concerns following an announcement by Fidelity that it will allow customers to allocate bitcoin to their 401(k) retirement accounts.

Sen. Elizabeth Warren (D-MA) and Sen. Tina Smith (D-MN) have sent a letter to Fidelity that cites the volatile nature of bitcoin and that asks the company how it plans to deal with “significant risks such as fraud, theft, and loss” posed by the leading cryptocurrency. Investing in cryptocurrencies is a risky and speculative gamble, and we are concerned that Fidelity would take these risks with millions of Americans’ retirement savings,” the letter states.

The letter goes on to state that “bitcoin’s volatility is compounded by its susceptibility to the whims of just a handful of influencers,” and it specifically cites Elon Musk. In addition the letter asks why Fidelity disregarded the Department of Labor’s (DOL) concerns.

Available in 2023

Boston-based Fidelity Investments had earlier announced it will begin to offer bitcoin as an investment option in its 401(k) plans by the middle of 2023.

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, according to the company.

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,” CNN reported, adding 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, according to CNN.

“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,” CNN reported. “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.”

Limits to be Set

“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 told CNN. “But employers may set the limit much lower, for example 5%. And that limit will also apply to how much money an employee can transfer into their DAA as a percentage of the 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 told the news outlet.

The report notes there will be a trading fee, which has yet to be announced. And the annual fee for the administration will be between 75 and 90 basis points of the assets in the account. That’s for custody, accounting and administration of the DAA, Gray added.

Fidelity is also providing plan sponsors with materials and tools to educate participants about the risks and volatility inherent in investing in bitcoin.

Labor Department Warning

The Labor Department has issued a warning that retirement accounts must meet the minimum standards of protection for participants set by the Employee Retirement Income Security Act. The Labor Department said it is very concerned about the prospect of 401(k) participants being exposed to the extreme volatility of crypto trading.

Bitcoin, currently trading just under $40,000, is down nearly 27% in the past 12 months, and is down about 15% this year alone.

Senators Demand Answers from Fidelity Over Plan to Allow Bitcoin As Part of 401(k) Accounts Article courtesy of CUToday.info