Fidelity will soon offer bitcoin as an alternative in 401 (k) s
Fidelity Investments announced on Tuesday that it will offer bitcoin as an investment alternative in it is 401 (k) plans by the middle of this year.
It is a big feature given that Fidelity is the largest provider of 401[ads1] (k) plans in the US, and acts as a repository for 23,000 plans, which has 20.4 million participants. In total, these plans represent $ 2.7 trillion in assets under management.
It is also the first large 401 (k) provider to offer cryptocurrency as an investment for retiree savers.
However, the Bitcoin option will only be offered to participants if employers have chosen to include it in their plan.
Fidelity did not specify how many employers has already signed up. “But we have a number of customers who have committed and a number of others in the evaluation process,” said Dave Gray, Fidelity’s head of workplace platforms and products. He expects to hear from more customers now that Fidelity has announced the news.
Gray also noted that both the engaged customers and the interested ones vary in size and industry.
As with any other investment in a 401 (k) plan, participants can choose to direct a portion of their regular savings contributions to what will be known as their digital asset account (DAA) where their bitcoin will be held. They can also choose to transfer money to their DAA from another investment they have within the plan. And they can take distributions from that account.
But there will be limits to how much they can contribute – Fidelity will not allow any employer to set that limit higher than 20%, Gray so. But employers can set the limit much lower – for example at 5%. And that limit will also apply to how much money you can transfer to your DAA as a percentage of your 401 (k)’s total assets.
There will also be a limit on how often you can make “round-trip trades” in or out of the account. “We designed this from the point of view of investors who see bitcoin as a long-term retirement savings option. It is not for intraday trading or anyone who wants to trade on market fluctuations,” said Gray.
There will be a trade fee, which has not yet been announced. And the annual fee for the administration will be between 75 and 90 basis points of the assets in the account – then $ 75 to $ 90 for every $ 10,000. That’s for the custody, accounting and administration of the DAA, Gray said.
Fidelity also provides plan sponsors with materials and tools to educate participants about the risks and volatility inherent in investing in bitcoin.
The Ministry of Labor, which ensures that employers’ pension schemes meet the minimum standards for protection for participants set by the Employee Retirement Income Security Act, has publicly indicated that it is very concerned about the prospect of 401 (k) participants being exposed to the extreme volatility of crypto trading.
And it has said it will keep a close eye on plans that offer cryptocurrencies as an investment option.
Fidelity claims that DOL has violated by designating an investment type and suggesting that it is careless instead of leaving this assessment to employers with a duty to trust their plans. «Determination of caution [in investment options] belong to plan sponsor managers, “said Gray.
In any case, investing in bitcoin has been and continues to be a wild ride – and anyone saving for retirement should not bet their financial security too heavily on the cryptocurrency class.
Bitcoin, which is currently trading at just under $ 40,000, has fallen almost 27% in the last 12 months, and is down around 15% this year alone.
