This is a big move, given that Fidelity is the largest provider of 401 (k) plans in the United States, acting as the custodian of 23,000 plans with 20.4 million participants. In total, these plans represent $ 2.7 trillion in assets under management.
It is also the first major 401 (k) provider to offer cryptocurrency as an investment for retirement savers.
However, the bitcoin option will only be offered to participants whose employers have chosen to include it in their plan.
Fidelity did not specify how many employers have already signed. “But we have a number of customers who have been involved and a number of others in the evaluation process,” said Dave Gray, Fidelity’s workplace platform and product manager. He expects to hear more customers now that Fidelity has announced the news publicly.
Gray also noted that both engaged customers and stakeholders vary in size and industry.
How it will work
As with any other investment in Plan 401 (k), participants can choose to direct part of their regular savings contributions to what will be known as their Digital Asset Account (DAA), where their bitcoins will be held. They may also choose to transfer money to their DAA from another investment they have under the plan. And they can take distributions from that account.
But limits will be set on how much they can contribute – Fidelity will not allow any employer to set that limit higher than 20%, Gray said. But employers can set the limit much lower – for example at 5%. And this limit will also apply to how much money you can transfer to your DAA as a percentage of your total assets of 401 (k).
There will also be a limit to how often a person can make “reverse trades” in or out of the account. “We designed this from the point of view of investors who see bitcoin as an opportunity for long-term retirement savings. It’s not about trading during the day or someone who wants to trade in market fluctuations, “Gray said.
There will be a trading fee that has not yet been announced. And the annual administration fee will be between 75 and 90 basis points on the assets in the account – so $ 75 to $ 90 for every $ 10,000. That’s for the DAA’s trusteeship, accounting and administration, Gray said.
Fidelity also provides plan sponsors with materials and tools to educate participants about the risks and instability inherent in investing in bitcoin.
Warning from the Ministry of Labor
The Ministry of Labor, which ensures that employers’ pension plans meet the minimum standards for the protection of participants set by the Employee Security Income Retirement Act, has publicly stated that it is very concerned about the prospect of 401 (k) participants being exposed. of extreme instability of crypto trading.
And he said he would pay special attention to plans that offer cryptocurrencies as an investment option.
Fidelity claims that DOL has exceeded by allocating a type of investment and hints that it is unwise instead to leave this assessment to employers with a fiduciary obligation for their plans. “The determination of prudence [in investment options] belongs to the trustees of the plan’s sponsors, “Gray said.
In any case, investing in bitcoin has been and continues to be a wild trip – and anyone who saves for retirement should not rely too heavily on financial security in the crypto asset class.
Bitcoin, which is currently trading just under $ 40,000, has fallen nearly 27 percent in the past 12 months to about 15 percent this year alone.
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