Fidelity shrewdly circumvents DOL’s – and ERISA’s – 401(k) cryptographic guidelines to become a pioneer profit center by adding Bitcoin to plan menus, knowing plan sponsors are willing to take responsibility if necessary

The $12 trillion Boston firm shocked everyone with the timing of the “seminal” move, despite tut-tutting “guidance” from the Labor Department, after concluding that Bitcoin’s volatile days were behind it.

Brooke’s note: Pretty much hell or flood, the great capitulation to the “experiment” that is cryptocurrency has happened. Whether you’re a teenager or a savvy financier, there’s no turning back. Poverty is an option. Leaving an adventure like Bitcoin investing in the rearview mirror as an “uncharted road” is unfathomable. Still, it will take a few battering rams to tear down the remaining walls of the convention — like the sensible guidance guardrails thrown in by the guardians of ERISA — the DOL. Loyalty is seeing it, feeling it and going for it. The benefit is beyond mind connecting Bitcoin to 32 million largely cryptoless investors by the time the price came back down to earth. The downside is ugly but it’s an option – unlike running in fear at this point.

Fidelity Investments caught the industry off guard by revealing that 22,000 employers who use its 401(k) recordkeeping service can start offering Bitcoin alongside ETFs in plans this summer.

Plan sponsors want crypto, says Dave Gray, Head of Workplace Retirement Offerings and Platforms at Fidelity Investments.

Aaron Schumm: “I’m not there yet.”

Fidelity announced the news on Tuesday, April 26, and could start adding bitcoin by the middle of the year, Fidelity spokeswoman Anjelica Sena said.

“Our Slack channels were exploding around him,” says Aaron Schumm, founder and CEO of Vestwell, a new 401(k) record holder in New York.

According to experts, loyalty definitely faces pros and cons.

Bitcoin has the potential to breathe new life into Fidelity’s 401(k) franchise with rich oxygen that breathes life into its fledgling digital asset business in one strategic move.

“Plan sponsors are increasingly interested in vehicles that allow them to provide their employees with access to digital assets under defined contribution plans, as well as individuals wishing to integrate cryptocurrencies into their long-term investment strategies,” says Gray.

red flags

But substantial risk also lurks, and some industry vendors say it’s still too early to make the leap like Fidelity.

Micah Hauptmann
Micah Hauptman warns of crypto volatility.

Schumm says he plans to stay away, for now, despite investor interest in Bitcoin on 401(k) plan menus.

“We talk about it constantly but I’m not there yet,” he said. “I have a call scheduled with DOL to talk about it and make myself comfortable.”

Consumer groups are also raising red flags.

In an April 26 letter, Micah Hauptman, director of investor protection for the Consumer Federation of America (CFA), suggested to the DOL that Fidelity might be reckless in its zeal because investors cannot separate “the facts from the hype”.

“[Cryptocurrency] may exhibit extreme price volatility, which can be particularly devastating for participants approaching retirement,” he wrote.

Assess volatility

For its part, the DOL addressed the subject in a March 10 directive titled “401(k) Plan Investments in “Cryptocurrencies.” The version, known as the CAR – short for Compliance Assistance Release – urges great caution regarding crypto investments.

jason robert
Jason Roberts: “A platform provider/archivist is not a trustee.”

The missive reflected the views of Ali Khawar, head of the DOL Employee Benefits Security Administration, who called the idea of ​​making cryptocurrency a nest egg staple “very troubling.”

Fidelity responded with its own letter to the DOL on April 12; he essentially called the department’s analysis too broad in an area where details matter.

Fidelity maintains that not all crypto assets are volatile.

“Each type of investment is likely to have a different volatility profile, be understood by investors to different degrees, and present different custody and valuation issues,” he said.

“However, the RAC simply states that all are subject to these risks to a degree that renders all of them effectively reckless in the opinion of the Department.

“We respectfully request that the Department more specifically and clearly describe the scope of the investments that are the subject of its concern, and then clarify how the risks it has identified may differ based on the different investments covered.”


DOL guidelines do not necessarily trigger liability alarms for Fidelity, says Jason Roberts, CEO of the Pension Resource Institute, which specializes in compliance, practice management.

Max Schatzow
Max Schatzow: “DOL advice is informal. It’s not a rule.

“As for absorbing responsibility, I foresee that it rests solely with the trustees of the plan. Fidelity, as platform provider/archivist, is not a fiduciary and is not responsible for designating which investments participants can access on a plan-by-plan basis.”

Roberts calls the DOL’s CAR statement “a well-intentioned overbreadth.”

“I think the heart of the DOL was in the right place, but it’s not in line with the law, which doesn’t dictate what kinds of investments are prudent.

“The law requires trustees to go through an objective process and arrive at a well-informed decision.”

DOL guidelines aren’t a rule, and Fidelity’s decision doesn’t challenge anything, adds Max Schatzow, a partner at RIA Lawyers, a defense firm in West Friendship, Maryland.

“The DOL guidelines are that a fiduciary should exercise extreme caution. This was not an outright ban. It is also important to note that the DOL guidelines are informal. This is not a ruler.”

Legal time bomb

According to Fidelity guidelines, participants can invest up to 20% of their 401(k) savings in bitcoin, but each employer will decide the exact percentage of the plan.

Ali Khawar, DOL
DOL’s Ali Khawar shared his concerns about cryptocurrency.

“It will ultimately be up to the trustees to determine the investment guardrails and limits for their retirement plan offerings,” Sena said in a statement.

While the bitcoin option will be available to employers, Sena says each plan trustee will need to carefully consider the fund selection process.

“We strongly encourage ERISA Plan Trustees to consult with their ERISA Board and consider the risks, including the volatile nature of cryptocurrency, the potential lack of sufficient knowledge about digital assets by Plan participants, assessment and evolution of the regulatory environment.”

It’s too early for legal battles over crypto assets, but give it time, Schatzow says. Legal claims would likely be directed against the plan trustees.

“I don’t think it will happen all at once. But, if enough assets in participating pension plans end up in Bitcoin, and if we see a significant pullback, I would expect to see some of these lawyers take an interest in it.”

momentum game

Eric Edelman
Ric Edelman: One of the “defining moments in the evolution of the field of cryptography”.

“Until recently, Bitcoin often exceeded its intrinsic value on the upside during bull markets and on the downside during bear markets. It was a dynamic play with little or no resistance until the trend reached the exhaustion.”

Plan sponsors are thinking beyond typical risk parameters by requiring bitcoin, says Ric Edelman, former founder of Edelman Financial Engines, who now runs his own crypto firm Digital Asset Council.

“Employers will find it will serve as a recruiting tool,” he says.

“So many millennials and Generations X and Z own it and would love to hear that they can join a company that not only lets them buy bitcoin, but where the employer will give it to them through the l ’employer.

“Companies will quickly jump on it due to worker demand, and other ‘K’ suppliers will scramble to offer similar deals,” he adds.

think big

Fidelity, the largest 401(k) accountant with more than $3.3 trillion in retirement assets and more than 22,000 employers and 32 million participants, already has a big customer committed to investing in the assets digital, confirmed Sena.

MicroStrategy (MSTR), a publicly traded business intelligence, mobile software and cloud-based services company founded by Michael J. Saylor and Sanju Bansal, will begin offering bitcoins to employees.

“It’s potentially a huge market over the next 20 years, so the profit opportunity is quite significant and measured in the billions,” says Mike Alfred, owner of 401(k) company Brightscope and the company. of cryptography, Digital Assets Data.

Fidelity reported today (April 28) how important it thinks 401(k) record keeping and cryptocurrency custody could become.

He said he was creating 12,000 new positions, most of which are aimed at “developing new products for … a cryptocurrency offering for 401(k) plans.”

In fact, integrating Bitcoin into a million 401(k) plans could be a self-rewarding move for Fidelity, says Edelman.

“Millions of people who are not buying now will be able to do so, easily and automatically, with added tax benefits. Watch for price increases through this.”

seminal moment

Loyalty also has everything to gain from the explosion of cryptocurrencies. The move could turn its low-margin 401(k) business into a higher-margin profit center.

Cryptocurrency account fees will be 75 to 90 basis points for Fidelity’s proprietary administration, custody and accounting, Sena said.

“In exchange, we take care of the logistics of the secure storage of bitcoins. We offer participants the same security and institutional-grade bitcoin storage that we offer our institutional clients through the Fidelity Digital Assets platform.”

Edelman says Fidelity’s decision will “be remembered as one of the defining moments in the evolution of the crypto field.”

The defined contribution space had $10.4 trillion in assets in the third quarter of 2021, and the total retirement space, including IRAs and defined benefit plans, totaled $37.4 trillion.

An estimated 27 million people, 8.3% of domestic investors, own cryptocurrency.

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