Fidelity to Allow Retirement Savers to Add Bitcoin option in 401(k) plan’s menu

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Key Takeaways:

  • 23,000 companies that use Fidelity will soon have the Bitcoin option on their retirement plan menu
  • The U.S. Labor Department had earlier issued guidance cautioning employees to be careful before they add a crypto option to a 401(k) plan’s investment menu.”
  • New Development comes at a time when Bitcoin has been acting notoriously volatile in the stock market.

Fidelity Investments is making history by being the first major retirement-plan provider to allow investors to put a bitcoin account in their 401(k)s. Employees and staff won’t be able to start adding cryptocurrencies to their nest eggs right away, but in late 2022, the 23,000 companies that use Fidelity to administer their retirement plans will be provided with the option to put bitcoin on the menu. 

The development indicates crypto investing is moving further into the mainstream, but the answer to whether employers will embrace it for their workers remains to be known.

Fidelity’s move comes nearly a month after the Labor Department had expressed concerns regarding including cryptocurrencies in retirement plans. This new development also comes at a time when Bitcoin has been acting notoriously volatile in the stock market and has lost over 40% of its value since its November high. However, this bitcoin endorsement by the nation’s largest retirement-plan provider is expected to eradicate people’s concerns regarding crypto, prompt wider acceptance among employers and attract more investment towards this sector.

Dave Gray, head of workplace retirement offerings and platforms at the Boston-based company, said, “There exists a need for a diverse set of investment solutions and products for our investors. We fully expect that cryptocurrency is going to shape the way future generations think about investing for the near term and long term.”

Under this new plan, the US-based retirement plan provider would let savers allocate as much as 20% of their nest eggs to bitcoin. 401(k) plans have been devoid of crypto investment for some time. One small firm that caters to smaller 401(k) plans allows workers in some of the plans it administers to invest up to 5% of their 401(k) contributions in bitcoin and some other cryptocurrencies.

Fidelity has been engaging with cryptocurrencies since a decade ago, when Abigail Johnson, chief executive, began to hold weekly internal meetings to discuss digital assets and blockchain technology. The company started mining bitcoin in 2015 and later added a link on retail customers’ accounts to Coinbase, the crypto exchange, to track their holdings. In 2020, Fidelity opened its own crypto fund for wealthy customers. The company now enjoys a booming presence in the cryptocurrency business, including a trading and custody platform it launched in 2018 that caters to hedge funds and other sophisticated investors.

Fidelity’s move, while welcomed by crypto-enthusiasts, is expected to face several hindrances along the way. The U.S. Labor Department, which regulates company-sponsored retirement plans, has long been skeptical about bitcoin’s adoption on 401(k) menus. The department published guidance on March 10 cautioned employers to “exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu.” Employers offering cryptocurrencies should expect regulators’ questions “about how they can square their actions with their duties of prudence and loyalty” under U.S. pension law, the U.S. Labour Department said. Fidelity and several other trade groups from the financial-services industry wrote letters calling on the Labor Department to withdraw the guidance. 

Some Experts believe employers will steer clear of cryptocurrency in 401(k) plans. Companies historically have shown little interest in letting their employees rely on cryptocurrency for their retirement security. About 2% of the 63 employers in a recent Plan Sponsor Council of America poll said they would consider adding cryptocurrency to their 401(k) menu.

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Saniya Raahath
Saniya Raahath

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