Saturday May 28, 2022

20% of crypto in a 401(k)? DOL will likely ‘pressure’ Fidelity to lower that limit, analyst says

The Department of Labor, which oversees employer-sponsored retirement plans, took issue with Fidelity Investment’s decision to allow a maximum of 20% of 401(k) plans to be invested in bitcoin, according to a recent report.

The DOL has “grave concerns with what Fidelity has done,” Ali Khawar, acting assistant secretary of the Employee Benefits Security Administration, told The Wall Street Journal.

Fidelity announced on Tuesday that it would allow up to 20% of their 401(k) plans to be invested in bitcoin, though employers would have final say on the percentage. Employers are held to a fiduciary standard when offering retirement accounts, and are responsible for evaluating plans for any risky investments or high fees. Some companies may choose only to allow 5% of their portfolios to be invested in bitcoin, while others might choose 10%, Fidelity said.

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See: Why I don’t want bitcoin in my 401(k)

Bitcoin and other cryptocurrencies are becoming more popular, but they’re still volatile investments. Many advisers suggest individuals proceed with caution when investing in these assets, and refrain from doing so with money they need now or in the future (such as retirement savings). But because there’s so much “hype” around these assets, people feel they need to invest or they’ll be “left behind,” Khawar told the WSJ.

The DOL had issued a warning in March to employers about offering cryptocurrencies in retirement accounts. As a result, the department will likely accept some amount of bitcoin in a 401(k) plan, but will “pressure for that number to be below 5%,” according to Jaret Seiberg of Cowen Washington Research Group. “If it wanted the exposure to be zero, we believe the agency would have gone further than just speaking to a newspaper.”

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Though the investing world is still watching how cryptocurrencies will fit into employer-sponsored retirement plans, investors can include bitcoin and other digital assets in IRAs already.

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