Senators Elizabeth Warren (D-MA) and Tina Smith (D-MN) want answers from Fidelity about its recently announced plan to allow bitcoin investments for 401k plans—and specifically want to know why Fidelity failed to heed the Department of Labor’s warning about crypto investments.
In late April, Fidelity Investments announced the launch of 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 bold move drew instant scrutiny in light of the DOL’s compliance assistance guidance published on March 10 for 401k plan fiduciaries considering plan investments in cryptocurrencies.
In their May 4 letter addressed to Fidelity CEO Abigail Johnson, Senators Warren and Smith ask the company to explain why it has failed to heed the DOL warning about 401k crypto investments and raise concerns about potential conflicts of interest presented by Fidelity being both a bitcoin miner and a purveyor of bitcoin.
“We write to inquire about the appropriateness of your company’s decision to add Bitcoin to its 401(k) investment plan menu and the actions you will take to address ‘the significant risks of fraud, theft and loss’ posed by these assets,” wrote the lawmakers.
“In short, investing in cryptocurrencies is a risky and speculative gamble, and we are concerned that Fidelity would take these risks with millions of Americans’ retirement savings.”
Senators Tina Smith and Elizabeth Warren
In recent months, DOL became aware of firms marketing investments in cryptocurrencies to 401k plans as potential investment options for plan participants. This spurred DOL to publish its warning in March reminding fiduciaries of their responsibilities under the Employee Retirement Income Security Act (ERISA) and highlighting the risks that cryptocurrency may pose to retirement accounts. The Department expressed “serious concerns regarding the prudence of a fiduciary’s decision to expose 401(k) plan’s participants to direct investments in cryptocurrencies” and cited “the significant risks of fraud, theft and loss” presented by these digital assets.
Fidelity has been a proponent of cryptocurrency for years and announced that it had begun mining cryptocurrency in 2015, an operation that, according to Johnson, “miraculously now is actually making a lot of money.” Because of this, the company’s decision regarding 401k bitcoin investments presents additional conflict of interest concerns.
“We are also concerned about Fidelity’s potential conflicts of interest and the extent to which they may have affected the decision to offer Bitcoin,” the lawmakers continued. In addition to mining bitcoin, Fidelity has expanded its crypto activities, “add(ing) a link on retail customers’ accounts to Coinbase, the crypto exchange, to track their holdings” and “open(ing) its own crypto fund for wealthy customers.” Now, Fidelity has become “the first to offer employers exposure to Bitcoin for the core lineup of 401(k)s.”
“In short, investing in cryptocurrencies is a risky and speculative gamble, and we are concerned that Fidelity would take these risks with millions of Americans’ retirement savings,” the letter states.
Here are the questions Sens. Warren and Smith want answered by May 18:
1. Why did Fidelity ignore DOL’s “serious concerns regarding the prudence of a fiduciary’s decision to expose a 401(k) plan’s participants to direct investments in cryptocurrencies”?
2. What risks does Fidelity assess that Bitcoin presents to its customers?
a. What are the specific volatility and loss risks posed by Bitcoin, and how will Fidelity address these risks?
b. What are the specific fraud risks posed by Bitcoin, and how will Fidelity address these risks? What are the specific theft risks posed by Bitcoin, and how will Fidelity address these risks?
c. How will Fidelity address the additional Bitcoin risks identified by DOL, including the challenge for plan participants to make informed investment decisions, custodial and recordkeeping concerns, valuation concerns, and the evolving regulatory environment?
3. What fees will your customers incur if they decide to invest in Bitcoin?
4. How much has Fidelity earned from cryptomining activities since the establishment of its mining operation?
5. When Fidelity made its decision to allow sales of Bitcoin in retirement accounts, how did the company address its own conflicts of interest, given that the company now is both a Bitcoin miner and a purveyor of Bitcoin?
SEE ALSO:
• Fidelity to Offer Bitcoin in 401ks
• DOL ‘Gravely Concerned’ About Fidelity 401k Bitcoin Announcement
• What Does Fidelity’s 401k Bitcoin Plan Mean for Advisors, Sponsors?
• DOL Cautions 401k Fiduciaries on Cryptocurrencies in Wake of Executive Order