What’s being touted as the “world’s first Bitcoin 401k plan” is now available for companies to offer to employees.
Jonathan Chester, CEO of Bitwage, announced the launch of the innovative new plan in a blog post on May 26.
“After 10 months of testing the product with Bitwage as the first customer, we are happy to announce the launch of our company sponsored Bitcoin 401k. What this means is that companies can offer employees the ability to invest traditional/pre-tax and roth/post-tax 401k dollars into Bitcoin,” Chester says.
This is made possible through a four-way strategic collaboration between Bitwage, Leading Retirement Solutions, Kingdom Trust and Gemini, Chester says. Leading Retirement Solutions provides the administration and recordkeeping for the 401k program to ensure Department of Labor and IRS compliance, Kingdom Trust provides a secure and regulated custody solution, Gemini provides a secure and compliant exchange solution, and Bitwage acts as a concierge for the company and employees to navigate between all four companies.
Chester says Bitwage will initially limit the number of clients that can sign up.
“Once these accounts are created, your 401k plan is ready to go and can be funded on your next pay period and with rollovers/transfer from old retirement accounts, including IRAs, 401k, 403b, pension plans, and more,” Chester says.
All funds will be converted on Gemini to Bitcoin automatically for each pay period. Employees will be able to choose to buy and sell between USD and Bitcoin as they see fit.
Additionally, Leading Retirement Solutions gives companies access to over 20,000 different assets, including traditional investments like mutual funds and ETFs, as well as non-traditional investments, including private and public stock, joint ventures, real estate, notes and more.
“This means that employees will have all the traditional investment options available to them and will be able to freely switch between Bitcoin investments and traditional investments,” Chester says in the blog.
401k contributions for PPP loan recipients
Chester says on reason many companies could be interested in the launch of the Bitcoin 401k Plan is the Payroll Protection Program (PPP).
“Many companies affected by the coronavirus have recently received funds from the SBA PPP loan program. Businesses and entrepreneurs understand that 75% of those funds must be payroll expenses in order to receive 100% loan forgiveness. A problem that many of these companies are facing is that paying out 75% of the funds during the eight weeks following the PPP loan deposit has many issues, such as delays in rehiring furloughed employees,” Chester says.
“We are working with clients who want to use PPP proceeds to make contributions to a 401k plan. It turns out that retirement benefits are included in the expenses that can be counted towards the 75% payroll expenses and they are not included in the $100,000 yearly salary cap per employee,” he adds. “This gives companies an opportunity to provide matching or profit sharing contributions to employee 401k accounts in order to help close the gap to receive full loan forgiveness.”
Contributions to traditional 401k plans also work for this purpose.
Looking back and forward
Describing itself as a leader in providing “payroll and HR services for the new digital era,” San Francisco-based Bitwage has a focus on innovation.
“For our customers in the U.S., we have always likened the ability to get paid in Bitcoin similar to having a percentage of your wage be deferred into a 401k,” Chester says. “About a year ago, we thought about whether it would be possible to trade Bitcoin inside of a tax-incentivized 401k retirement account. We found out that due to IRS official guidance on the tax treatment of Bitcoin in 2014 as property, there have been many companies already offering Bitcoin IRAs, but no one has created a Bitcoin 401k Plan.”
While many in the retirement plan market have long warned about the risks of crypto for novice investors like many 401k plan participants, the staying power of Bitcoin, the digital-only currency created in 2009 following the housing market crash, has many investors intrigued.
The price of Bitcoin peaked on Dec. 15, 2017, when one Bitcoin was valued at $19,650. The price fell to $3,183 on Dec. 14, 2018. As of May 27, 2020, one Bitcoin equals $9,158.
Despite it not being legal tender, Bitcoin charts high on popularity, as Investopedia notes, and has triggered the launch of hundreds of other virtual currencies collectively referred to as Altcoins.
In posing and answering the question of why someone would want to invest in Bitcoin over time in a 401k plan instead of in one lump sum, Chester points to data. “Taking a look at our bitcoin dollar cost average calculator, you can see that if you started getting a percentage of your paycheck in Bitcoin at the height of the 2017 bitcoin bubble, on May 19, 2020, you would have over a 30% ROI as of May 22, 2020.”
Chester says this is just the beginning for the Bitcoin 401k plan. “Our vision includes integrating a trading engine directly inside of the 401k plan so institutional as well as retail investors have access to the same exchange-grade trading tools inside of tax-incentivized retirement accounts,” he says. “Future development also includes access to different kinds of digital assets as the crypto token asset class continues to grow in popularity.”