Cryptocurrency 401(k) option is close to reality! Plan trustees now have a new asset to explore, decide, and measure. Trustees of the plan need to learn the specifics of the 401(k) cryptocurrency option. Some 401(k) plan members will soon be able to invest in bitcoin through their retirement plan. According to recent Fortune article.
Plan sponsors must register for Bitcoin to be available as a 401(k) cryptocurrency option. There are expected to be limits on the number and types of cryptocurrencies that employees are allowed to invest in their 401(k) work accounts. This seismic change from Fidelity could allow millions of pension plan members to invest in bitcoin without having to create a separate account on a cryptocurrency exchange. Members of the plan will be able to invest in bitcoin through “Digital Asset Account“. This 401(k) cryptocurrency option will become part of their 401(k) investment lineup. This account will also include short-term money market investments to provide the necessary liquidity for Bitcoin purchases.
Employers will have the option to limit the amount an employee can deposit into bitcoin. The Fidelity platform does not allow more than 20% of member contributions to be placed in cryptocurrency. The company may also offer additional cryptocurrency options for 401(k) investors in the future. Account fees will vary from 0.75% to 0.90% of account assets, depending on New York Times report quoted in Fortune.
Surprisingly, Fidelity’s decision follows a recent announcement from Department of Labor (DOL). The DOL expressed “serious concerns about decisions about plans to encourage members to direct investment in cryptocurrencies or related products such as NFTs, coins and cryptoassets.” The problem is that most 401(k) plan members are new investors; Bitcoin is a rather volatile investment that can cause participants to panic or exit their positions prematurely, jeopardizing their long-term profits and savings goals. In addition, financial advisors often recommend not investing 100% in digital assets for retirement—another potential risk for 401(k) participants.
However, Fidelity said that members want to be able to invest in bitcoin in their 401(k) plans and that they can benefit from dollar cost averaging and deferred tax savings if they do so in their workplace retirement plans. Additionally, according to Fidelity, the plan’s backers and members want Bitcoin as an investment option in their 401(k) plans.
Fidelity is the first high-end retirement plan provider to offer bitcoin in its 401(k) plans, according to Fortune. However, other providers are likely to follow suit. Plan sponsors interested in offering any 401(k) cryptocurrency as an investment option in their 401(k) plans should keep a close eye on the Fidelity model. As with any retirement plan investment decision, it makes sense to seek the help of a qualified retirement plan advisor. in list of 401(k) certified professionals, C(k)P Title holders are a good starting point. Another prudent strategy is to consult with an ERISA legal advisor to ensure that you have identified all relevant risks associated with using cryptocurrencies as an option in accordance with a qualified plan.
Steff K. Chock is the Executive Director of The Retirement Advisor University, created in partnership with the Anderson School of Management at the University of California, Los Angeles. Steff is also the executive director of the plan’s sponsoring university and is currently a professor at Pension Counselor University.