A trio of U.S. Senators are still unhappy with Fidelity’s decision to allow 401k plan participants on its platform to allocate as much as 20% of their 401k funds to bitcoin—especially in the wake of the recent FTX collapse that they say “has made it abundantly clear the digital asset industry has serious problems.”
Senators Elizabeth Warren (D-MA), Dick Durbin (D-IL) and Tina Smith (D-MN) sent another letter to Fidelity Investments CEO Abigail Johnson on Monday asking Fidelity to reconsider its bitcoin offering to retirement investors.
“We strongly urge Fidelity Investments to reconsider its decision to allow 401(k) plan sponsors to expose plan participants to Bitcoin”
“In light of the recent stunning events in the digital asset market, we write today as a follow up to our previous letter sent on July 26, 2022. Once again, we strongly urge Fidelity Investments to reconsider its decision to allow 401(k) plan sponsors to expose plan participants to Bitcoin,” the letter begins. “Since our previous letter, the digital asset industry has only grown more volatile, tumultuous, and chaotic—all features of an asset class no plan sponsor or person saving for retirement should want to go anywhere near.”
The Senators acknowledge Fidelity’s status as a global leader in retirement security but note the company has opted to expand beyond traditional finance and delve into the “highly unstable and increasingly risky” digital assets market.
“The recent implosion of FTX, a cryptocurrency exchange, has made it abundantly clear the digital asset industry has serious problems. The industry is full of charismatic wunderkinds, opportunistic fraudsters, and self-proclaimed investment advisors promoting financial products with little to no transparency,” the letter continues. “As a result, the ill-advised, deceptive, and potentially illegal actions of a few have a direct impact on the valuation of Bitcoin and other digital assets. FTX’s collapse, which has wreaked havoc across the digital asset market, cannot be ignored.”
The letter goes on to point out that the value of bitcoin has plummeted since their last letter.
“On July 26, one Bitcoin was valued at $21,239. Today, Bitcoin is valued at $16,884—a two-year low,” the letter continues. “While the full extent of the damage caused by FTX continues to unfold, the contagion is being felt across the broader digital asset market. Bitcoin is no exception. In light of these risks and continuous warning signs, we again strongly urge Fidelity Investments to do what is best for plan sponsors and plan participants—seriously reconsider its decision to allow plan sponsors to offer Bitcoin exposure to plan participants.”
401(k) Specialist reached out to Fidelity for comment on the latest letter, and received the following response from a Fidelity spokesperson:
“Recent events in the digital assets industry have further underscored the importance of standards and safeguards. As a firm that has been serving customers in financial markets for over 75 years, Fidelity has always prioritized operational excellence and customer protection across all of its businesses.”
Earlier this month, Fidelity confirmed that that there are companies that offer Fidelity’s Digital Assets Account as a part of their core 401k lineup. The first plan sponsors went live this fall, as expected, the company said in a statement to 401(k) Specialist.
While Sens. Warren, Durbin and Smith want Fidelity to pull the plug on the fledgling program, others are saying that the built-in protections and heavy professional oversight a program like Fidelity’s provides makes 401ks an ideal place for bitcoin.
In a recent interview with 401(k) Specialist, high-profile advisor Ric Edelman said he has no doubt that bitcoin will be a routine offering in 401ks around the country within the next two to three years.
“The FTX debacle has no bearing on the question of whether bitcoin should be allowed in 401k plans,” Edelman said. “That’d be like saying stocks should be prohibited from plans because Bernie Madoff stole $60 million in a Ponzi scheme in the stock market. FTX appears to have been yet another fraud, like so many others we have seen in every asset class—stocks, bonds, gold, oil, real estate, and commodities. In fact, the [401k] plan is actually the best place for bitcoin since the plans are operated so prudently with massive levels of professional oversight.”
Two Republican-backed congressional bills have been proposed this year seeking to allow crypto investments in retirement plans and prevent regulators from restricting access to these investments in such plans.
The Retirement Savings Modernization Act proposed in late September by U.S. Senators Pat Toomey (R-PA) and Tim Scott (R-SC) and U.S. Representative Peter Meijer (R-MI) would remove liability for a breach of fiduciary duty for offering access to bitcoin and cryptocurrencies. It would amend ERISA to clarify that private sector retirement plan sponsors may offer plans, including both pensions and 401ks, that are prudently diversified across the full range of asset classes.
Just today, New York Attorney General Leticia James released a statement urging Congress to protect workers by prohibiting retirement investments in cryptocurrencies. Without naming Fidelity, James noted “a major financial institution has offered Bitcoin as an investment option in its 401k plans, and other financial institutions are expected to follow suit.” With recent crypto market crashes and other market turbulence, James stressed the need to protect workers’ retirement funds and avoid the dangers of risky cryptocurrencies.
“Investing Americans’ hard-earned retirement funds in crashing cryptocurrencies could wipe away a lifetime’s worth of hard work,” James said. “Over and over again, we have seen the dangers and pitfalls of cryptocurrencies and the wild swings in these funds. Hardworking Americans should not have to worry about their retirement savings being wiped out due to risky bets on unstable assets like cryptocurrencies. I urge Congress to take action to protect working families from having their retirement accounts dry up because of crypto investments.”
SEE ALSO:
• Crypto in 401ks Happening Right Now
• FTX Meltdown Doesn’t Alter Crypto 401k Prediction: Ric Edelman
• Fidelity’s ‘Bitcoin-in-401ks’ Plan Moving Forward Despite Questions from Senators
• Fidelity to Offer Bitcoin in 401ks
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
