The Department of Labor questions Fidelity Investments’ decision to offer cryptocurrency investments to 401(k) plans, especially when they received a heads-up on the retirement giant’s plans only one day before the company announced its strategy.
The volatility of cryptocurrencies “is troubling to us,” said Ali Khawar, the DOL’s acting assistant secretary for the Employee Benefits Security Administration, in an interview.
In Fidelity program, allowing up to 20% of a participant’s retirement account to be invested in cryptocurrency is unsettling because “that is a lot to allocate to a single asset,” he said. Earlier guidance from the IRS noted: “If you invest more than 20% of your retirement savings in any one company or industry, your savings may not be properly diversified.”
Mr. Khawar said the DOL needs to learn more details about Fidelity’s plan. Fidelity’s service will be available to clients in mid-2022.
Fidelity’s announcement came six weeks after the Labor Department issued a March 10 “compliance assistance release” telling 401(k) plan fiduciaries to “exercise extreme care” before choosing cryptocurrency as an investment option. The report said EBSA will conduct “an investigative program aimed at plans that offer participant investments in cryptocurrencies and related products.”
EBSA will take “appropriate action to protect the interests of plan participants and beneficiaries with respect to these investments,” the report said.
“We are not banning” cryptocurrencies in retirement plans, Mr. Khawar said. “This is not necessarily forever guidance. As the context changes, it’s entirely possible our answers will change.”
Meanwhile, the Securities and Exchange Commission recently announced it is expanding its unit to protect consumers in crypto markets. A bill was recently introduced in the US House of Representatives to give more crypto monitoring power to the Commodity Futures Trading Commission.
The volatility of crypto is acknowledged by Fidelity in its April 26 news release. “Digital assets are speculative and highly volatile,” the company wrote. Such investments “are for investors with a high risk tolerance. Investors in digital assets could lose the entire value of their investment.”
“As part of our ongoing communication with our plan sponsor community to discuss how to improve the retirement savings efforts for their employees, Fidelity has seen growing interest from plan sponsors in providing their employees access to digital assets in defined contribution plans,” Dave Gray, Boston-based head of workplace retirement offerings and platforms, said in an email.
“To address this growing interest, we have launched the Digital Assets Account that will enable individuals to have a limited portion of their retirement savings allocated to bitcoin through the core 401(k) plan lineup,” Mr. Gray said.
“Participants can invest up to 20% of their total 401(k) savings in DAA, but their employer will determine the percentage for their particular plan,” he said. “Contributions are limited to 20%, but the total percentage of your savings can exceed 20% (for instance, if bitcoin increases in value) and you can continue to contribute.”
Mr. Gray also explained how Fidelity will trade bitcoin. “Rebalancing of the DAA to purchase or sell bitcoin is reviewed daily, and similar to other unitized investment options,” he said.
“If the balance of bitcoin or cash has exceeded the tolerance bands directed by the plan sponsor, Fidelity’s digital funds business will place the necessary orders to buy and sell for bitcoin trades and money market investments as applicable,” he said.