Bitcoin in 401ks took a major step forward today with the announcement that Fidelity Investments is launching Fidelity’s workplace Digital Assets Account (DAA), the industry’s first offering that will enable individuals to have a portion of their retirement savings allocated to bitcoin through the core 401k plan investment lineup.
The new offering, which leading business intelligence solutions provider MicroStrategy plans to add to its 401k plan later this year, will be available broadly to employers mid-year. MicroStrategy plans to be the first employer to offer DAA in its retirement plan.
“MicroStrategy looks forward to working with Fidelity to become the first public company to offer their employees the option to invest in bitcoin as part of our 401k program,” said Michael Saylor, Chairman and CEO of MicroStrategy. “Teaming with companies like Fidelity that are innovating in bitcoin for corporations is important to us, as is furthering the development of the bitcoin ecosystem for institutional investors.”
Enabling interested employers to offer their employees access to bitcoin through an investment option in their core 401k retirement plans on Fidelity’s platforms is a significant milestone, the company said in a statement today, in advancing Fidelity’s position as a holistic digital assets service provider.
“As a leader in digital assets, we are thrilled to be the first to offer employers exposure to bitcoin for the core lineup of 401ks that reflects our commitment to meeting their evolving needs and our belief in the promise of blockchain technology for the financial industry’s future,” said Dave Gray, Head of Workplace Retirement Offerings and Platforms at Fidelity Investments. “There is growing interest from plan sponsors for vehicles that enable them to provide their employees access to digital assets in defined contribution plans, and in turn from individuals with an appetite to incorporate cryptocurrencies into their long-term investment strategies.”
Laura Varas, CEO of research firm Hearts & Wallets—who formerly led Fidelity product management, new product development and marketing for equity funds in the retail channel—said it’s a good thing for plan participants and consumers.
“Many consumers are investing in cryptocurrency without understanding the risks. Our research shows cryptocurrency use almost tripled over the past year, yet only 28% of U.S. households that trade crypto for volatility are ‘very comfortable’ with risk in their investments,” Varas said. “Fidelity is limiting the amount that can be invested in crypto, unlike trading platforms, and can help educate plan participants about risks of crypto, which are similar to other currency trading. The good news is this offering helps to engage younger consumers in 401k plans.”
SkyBridge Capital’s Anthony Scaramucci tweeted this morning that this news cannot be underestimated: “@Fidelity is about to do for bitcoin what it did for stocks starting in the 1980s. #Bitcoin is a fixed supply and Fidelity’s engine of distribution will swell demand.”
Fidelity began its exploration of blockchain technology in 2014 with bitcoin mining and in 2018 launched its first commercial offering: Fidelity Digital Assets, a platform that offers custody and trade execution for digital assets to institutional investors. In 2020, Fidelity’s digital asset management business launched a private bitcoin fund that is currently available to accredited investors.
The announcement of Fidelity’s workplace digital assets account represents what the firm calls its continued commitment to evolving and broadening its digital assets offerings amidst steadily growing demand for digital assets across investor segments. According to the Fidelity Digital Assets 2021 Institutional Investor Digital Assets Study, 30% of U.S. institutional investors surveyed would prefer to buy an investment product containing digital assets. Meanwhile, Fidelity estimates that roughly 80 million U.S. individual investors currently own or have invested in digital currencies.
Yet the announcement was a surprise to many, American Retirement Association Chief of Content Officer Nevin Adams noted. He referenced a recent Compliance Assistance Release No. 2022-01 from the Labor Department’s Employee Benefits Security Administration (EBSA) “cautioning plan fiduciaries to ‘exercise extreme care‘ before they consider adding a cryptocurrency option to a 401k plan’s investment menu for plan participants (not to mention reference to a likely questioning upon audit) as a red flag for such considerations.”
How it works
The new proprietary offering will enable employees who are comfortable with the risks and volatility of cryptocurrency to invest in bitcoin through a Digital Assets Account within the core lineup of their 401k plan.
The DAA is a custom plan account that holds bitcoin and short-term money market investments to provide the liquidity needed for the account to facilitate daily transactions on behalf of the investor. Bitcoin in the DAA will be held on the Fidelity Digital Assets custody platform to ensure institutional-grade security. Plan sponsors electing to offer the DAA establish employee contribution and exchange limits into the account. Employees will benefit from a fully integrated retirement plan, digital experience and education to help them make informed decisions.
Newfront, a provider of retirement consulting services, indicated that DAA could help address a growing need among their client base.
“Increasingly, we are seeing interest from leading employers to add digital assets to their 401k plan,” said Chris Call, EVP Retirement Services, Newfront. “As companies consider alternative investment options in their plan design, we believe digital assets are worthy of consideration.”
Fidelity said employers can expect additional updates in the coming months as the firm continues to build out its digital asset platform, leveraging blockchain technology and expanding use cases beyond bitcoin.
SEE ALSO:
• Surprising Percentage of Millennials Counting on Crypto for Retirement
• Billionaire Thiel Blasts Bitcoin Critics, ESG Advocates in Fiery Speech
• SkyBridge’s Anthony Scaramucci: ‘Bitcoin is a Retirement Asset’
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.
Let me start by saying, I don’t have any problem with people investing in Bitcoin outside the 401k plan.
Why there may be some UNINTENDED POSITIVE RESULTS:
Including BitCoin creates a lot of excitement with younger employees who do not usually like to open a 401k plan. This may encourage them to do so resulting in more and more people thinking about future income. Also, it is a good marketing tool for Fidelity and adds increased fees of over 1% plus trading costs.
Why in my opinion NOT A GOOD IDEA:
As a CFP®️ and a Fiduciary, I have a fiduciary concern including Bitcoin in a 401k plan in 2022. I have many clients with 401k plans and I have been told by the clients that the amount of education they receive from their employers about the investments is minimal. In general, I am not in favor of strong government-industry regulations, however, 401k investment options have historically been sold to employers and employees as a way to help provide future retirement income. From my recent research, I have discovered that the provider of 401k investments determines which investments will be offered in the plan. There are no DOL or ERISA restrictions as to the “financial stability” of each investment option. The final decision remains with the employer to accept the investment options of the 401k provider, in this case, Fidelity. Blockchain and BitCoin may, in the future, have some financial regulations but at this time I think their inclusion in a 401k plan is premature.