Despite DOL Caution, Fidelity Forges Ahead with Crypto Option for 401(k)s

Despite recent cautions (warnings?) from the Labor Department, Fidelity has unveiled a new “digital assets” capability for 401(k) plans.

According to an April 26 press release, with this new proprietary offering, the Digital Assets Account, “you can provide your employees access to invest in digital assets, specifically bitcoin, in their core 401(k) investment lineup.”

Fidelity says that 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 401(k) plan. According to a press release, the offering will be available broadly to employers mid-year. The press release names MicroStrategy—a “business intelligence solutions provider—as planning to be the first employer to offer DAA in their retirement plan—“later this year.”

‘Caution’ Flag

The announcement was a surprise to many who had viewed 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 401(k) plan’s investment menu for plan participants (not to mention reference to a likely questioning upon audit) as a red flag for such considerations. 

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. The Wall Street Journal reports that workers at companies that sign up for the new offering can elect to transfer up to 20% of their account balances into a digital assets account that holds bitcoin and uses Fidelity’s institutional trading and custody platform. Employees can also invest up to 20% of each payroll contribution in bitcoin, though employers can impose lower caps.

“As a leader in digital assets, we are thrilled to be the first to offer employers exposure to bitcoin for the core lineup of 401(k)s 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.”

How It Will Work

The firm describes the process as follows:

1. Employees receive units of their plan's Digital Assets Account that primarily holds bitcoin plus short-term money market investments
2. Bitcoin held in the Digital Assets Account is securely custodied by Fidelity Digital Assets℠, an institutional-grade platform
3. Plan fiduciaries can establish employee contribution and exchange limits

A recent member survey by the Plan Sponsor Council of America found that only about 2% of employers were considering a cryptocurrency plan option following the DOL guidance. On the other hand, more than half (57%) said they would never consider cryptocurrency as a viable investment option, regardless. A recent NAPA-Net poll also found that for 88% of respondents cryptocurrency as a standalone investment option was “not on their to-do list.”