In a controversial but impactful move, the largest 401(k) administrator in the United States is adding a cryptocurrency option to its investment menu.
In early 2022, Fidelity Investments became the first firm to announce that it would offer its customers a way to invest part of their 401(k) savings and contributions in bitcoin, potentially up to 20%, despite government and regulator warnings.
Back when it announced its plan, Fidelity said it was the first in the industry to allow workers to make such investments without having to process them through a separate brokerage window. Some of the 24,500 401(k) plans that it administers will offer bitcoin as of this fall, according to the company.
It is not alone. ForUsAll Inc., which is a San Francisco-based 401(k) provider that has $1.4 billion in retirement-plan assets, has also rolled out a cryptocurrency option. The company’s CEO David Ramirez reported that 50 of its 550 clients began allowing their workers to invest some of their retirement savings in cryptocurrency about eight weeks ago. ForUsAll caters specifically to small companies and startups.
Fidelity and ForUsAll seem to be the only firms currently offering bitcoin as an investment option, with Fidelity offering a bitcoin fund to workers this fall while ForUsAll began offering six cryptocurrencies to workers this past month.
However, in recent market movements, the value of several cryptocurrencies has experienced a sharp dive on several fronts. The Wall Street Journal stated that there have been widespread concerns about the “health of the cryptocurrency ecosystem” in response to the crypto bankruptcies this year.
Since it reached a high value of more than $66,000 in November 2021, bitcoin has fallen to $20,092.
Labor Department officials have voiced concerns about Fidelity and other firms’ allowance of using retirement funds to invest in cryptocurrency, believing that it puts retirement security at risk for clients.
“We have grave concerns with what Fidelity has done,” Ali Khawar, acting assistant secretary of the Employee Benefits Security Administration, told The Wall Street Journal.
“For the average American, the need for retirement savings in their old age is significant,” Khawar said. “We are not talking about millionaires and billionaires that have a ton of other assets to draw down.”
Fidelity Investments serves over 40 million people, manages employee benefits for nearly 23,000 businesses, and supports more than 3,600 advisory firms, according to their website. It has $3.3 trillion in the plans it administers. The company declined to provide details about the cryptocurrency option for companies.
As for ForUsAll, Ramirez said that about 300 out of the 2,500 employees who are eligible to invest in cryptocurrency are presently doing so, and he expects 100 more companies to add this option for their customers by 2023.
Vanguard Group, Alight Solutions LLC, and T. Rowe Price Group Inc., other major 401(k) administrators, say that do not plan to offer cryptocurrency. Reportedly, there is a lack of demand from companies and a desire for more regulatory guidance and consumer protection.
When Fidelity first announced its plan to offer the bitcoin investing option, NPR reported that the Plan Sponsor Council of America had recently asked its members if the Labor Department’s warning changed their minds at all in terms of considering crypto. A solid 57% responded that they would never consider crypto as a viable investment option, regardless of the change. Another third stated that the warning “simply affirms the concern we already had.”
Ramirez said that most of the clients ForUsAll has added since it announced its intent to offer cryptocurrency in 2021 have noted that offer as an appeal.