Fidelity's new 401(k) plan will invest in Bitcoin
The company that runs the retirement savings plan would have to decide whether or not to include a digital assets account.
Fidelity, the largest provider of 401(k) plans in the United States, said on Tuesday that it would allow its participants to put a small amount of their retirement money into Bitcoin if their employers would let them do so.
Many people may be able to invest in Bitcoin this summer without having to set up an account on a cryptocurrency exchange. The idea isn't new: regulators have already said they're not sure about it. The Department of Labor, which is in charge of workplace retirement plans, said last month that it would look at plans that added digital assets to their investment menus.
When Cerulli Associates looked at 401(k) assets in 2020, Fidelity had $2.4 trillion in them, which is more than a third of the market. It said it was putting together an account for Bitcoin. In some cases, the account fee will be 0.75 percent to 0.90 percent of assets. This will depend on a lot of things, like the employer and how much money is invested. In the future, there will be an extra fee for trading that hasn't been revealed. The firm says it will be "competitively priced."
Dave Gray, the head of workplace retirement offerings and platforms at Fidelity Investments, said in an interview that plan sponsors were becoming more interested in how Bitcoin could be used in a retirement plan.
MicroStrategy, a business analytics company, has already agreed to work with Fidelity, Mr. Gray said, and Fidelity is in talks with other companies.
People will be able to open a digital assets account by the middle of this year, Fidelity said. It will be part of the 401(k) investment menu, just like more traditional mutual funds. People can choose to put a certain percentage of their contributions into a Bitcoin account, for example. That percentage will be: The employer will set the limit, but the platform won't allow allocations of more than 20%, though that number could change.
Last year, there were a lot of exchange-traded funds on the market that gave investors a chance to get in on the cryptocurrency market. But Fidelity's move is even more unusual because it would let Americans use their retirement money to bet on the new and risky field.
Last month, the Labor Department didn't say that crypto couldn't be used in retirement plans, but it reminded plan administrators that they had to choose "prudent" options. There was also a strong sense that cryptocurrencies didn't seem to meet that standard yet.
People who invest in these investments face a lot of risks and challenges, including a lot of risks of fraud, theft, and loss, the Department of Labor said in its compliance release. It said that it would look into plans that offered investments in crypto and other things.
Retirement investors may not understand the risks of cryptocurrencies, the government agency said. It also raised concerns about valuation, custodial, and record-keeping procedures.
In a letter to the Labor Department this month, Fidelity said the agency hadn't given any advice on how plan fiduciaries should deal with those concerns or do their job when they're considering investments in cryptocurrencies for their plans. Those who work for the company said they should help the department figure out how to meet those obligations.
According to Mr. Gray, the Department of Labor is giving up what should be the job of plan sponsors and fiduciaries to decide about crypto. He said Fidelity's new account addressed many of the Department of Labor's concerns.
If you have a digital account, for example, Fidelity said that it would be valued every day and held on its own custody platform to ensure "institutional-grade security." It also said that there would be a lot of educational materials included.
So, there isn't much that can be done about how volatile Bitcoin is: In the last few days, it has been trading at about $40,000. It hit a high of $69,000 on Nov. 9.
If you think about Fidelity, you might think of its huge retirement business. It was one of the first to get into the cryptocurrency market. In 2018, it started trading and keeping digital assets for big businesses. In 2020, it started a private Bitcoin fund for people who are "accredited." Last year, it became available in Canada. Its Fidelity Advantage Bitcoin ETF was made available late last year in Canada.