That’s a big step given that Fidelity is the largest provider of 401(k) plans in the United States, acting as the custodian of 23,000 plans, which have 20.4 million participants. In total, these plans represent $2.7 trillion in assets under management.

It is also the first major 401(k) provider to offer cryptocurrency as an investment for retirement savers.

The bitcoin option, however, will only be offered to participants whose employers have chosen to include it in their plan.

Fidelity did not specify how many employers have already signed. “But we have a number of customers who have engaged and a number of others in the assessment process,” said Dave Gray, head of workplace platforms and products at Fidelity. He expects to hear from more customers now that Fidelity has publicly announced the news.

Gray also noted that engaged customers and interested customers vary in size and industry.

How will it work

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 detained. They can also choose to transfer money to their DAA from another investment they have under the plan. And they can take distributions from that account.

But limits will be set on how much they can contribute — Fidelity won’t allow any employer to set that limit higher than 20%, Gray mentioned. But employers can set the limit much lower – for example, 5%. And that limit will also apply to the amount of money you can transfer into your DAA as a percentage of your 401(k)s total assets.

There will also be a limit to how often one can make “round trip transactions” to or from the account. “We designed this from the perspective of investors who view bitcoin as a long-term retirement savings opportunity. It’s not for intraday trading or someone looking to trade market swings” , said Gray.

There will be trading fees, which have not yet been announced. And the annual administration fee will be between 75 and 90 basis points of account assets, or $75 to $90 for every $10,000. It’s for custody, accounting and administration of the DAA, Gray said.

Fidelity also provides plan sponsors with materials and tools to educate plan members about the risks and volatility inherent in investing in bitcoin.

A warning from the Department of Labor

The Department of Labour, which ensures that employer-sponsored pension plans meet the minimum standards for member protections set out in the Employees Retirement Income Security Act, has publicly indicated that it is very concerned about the prospect that 401(k) participants are exposed to the extreme volatility of crypto trading.

And he said he will keep a particularly close eye on plans that offer cryptocurrencies as an investment option.

Fidelity says the DOL overstepped by singling out one type of investment and implying that it is imprudent rather than leaving that assessment to employers with a fiduciary duty for their plans. “The determination of prudence [in investment options] belongs to the plan sponsor’s trustees,” Gray said.

Either way, investing in bitcoin has been, and continues to be, a rat race – and anyone saving for retirement shouldn’t stake their financial security too heavily on the crypto asset class.

Bitcoin, which is currently trading at just under $40,000, is down almost 27% in the past 12 months and around 15% this year alone.

About The Author

Related Posts