Fidelity Investments last week shook the crypto and retirement industries by unveiling a plan to allow Bitcoin into the 401(k) plans it administers. Now, a top Labor Department official says he is concerned such a move could lead some Americans to lose a significant portion of their nest eggs.
The Boston-based investment firm said on April 26 it would let employers offer a
investment product later this year, the first such move for a large 401(k) administrator. The company oversees about a third of the $7.7 trillion in such plans for 23,000 employers. That means a huge swath of Americans may soon start to see Bitcoin offered in their 401(k) plans, right alongside traditional stock and bond mutual funds.
The news has triggered alarms at the Labor Department, whose responsibilities include policing the nation’s 401(k) plans and ensuring companies are giving employees suitable investment choices. Laws around retirement plans allow the department to investigate and even sue companies that break the rules, making it a critical arbiter of whether Fidelity’s crypto vision becomes reality.
Fidelity already has its first employer on board,
(ticker: MSTR), a software company that itself has around $5 billion in Bitcoins on its balance sheet.
In a Monday interview with Barron’s, Ali Khawar, the DOL acting assistant secretary in charge of employee benefits security, said the department wasn’t seeking to ban crypto retirement investments outright. Rather, it was concerned that companies could feel pressure to add Bitcoin as an investment option.
There is a sense of “If you miss out on this opportunity you’re going to kick yourself forever,” Khawar said. “That kind of emotional appeal is not just targeting participants but it also risks targeting plan sponsors.”
He said Labor officials planned to speak with Fidelity executives later this week to learn more about the product and how it is structured. Among the concerns are Fidelity’s decision to allow up to 20% of an investor’s retirement savings to be put into the Bitcoin product.
Putting aside DOL’s crypto-specific concerns, “if someone told you that they were putting 20% of their retirement account in any one asset, I think a lot of personal financial advisors would tell you that that’s not a really good idea,” said Khawar.
Fidelity has said employers can set a limit below 20%.
That isn’t to say Khawar has a stance on what a better limit would be. He said a 5% limit is better than 20%, but that plan sponsors first need to think about whether crypto is a prudent investment at all.
“While traditionally the role of the DOL has not been to approve products or opine on investments, we look forward to continuing our respectful dialogue (which began in January) to responsibly provide access with all appropriate consumer protections, and educational guidance for plan sponsors as they consider offering this innovative product,” said a Fidelity spokeswoman in a statement to Barron’s.
The Labor Department in March released guidance cautioning companies against including crypto in 401(k) plans. The guidance said that the department had worries about crypto-related consumer-protection issues, custody issues, and fraud, among other concerns.
Fidelity and others in the investment management industry sent letters calling on the Labor Department to revoke the guidance. Khawar said it has no plans to do so.
Khawar declined to say whether his department has opened investigations into any companies that plan to offer Bitcoin in 401(k)s. He said that Fidelity and MicroStrategy weren’t the only companies he was aware of that have facilitated or made such moves and that the DOL would probe companies “jumping in head first.”
It isn’t yet clear what the Labor Department would do if companies decide to move forward in offering crypto investments anyway, Khawar said. “We have the ability to investigate and ultimately to litigate over these issues,” said Khawar, while noting that he would prefer to solve the issues without litigation. “Our goal is not to forever and ever ensure that no one invests in any cryptocurrency.”
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