On April 26, 2022, Fidelity Investments, Inc. (“Fidelity”) announced that it will offer Bitcoin for employers to include as an investment option in their 401(k) plans. Fidelity will be the first major retirement plan service provider to offer crypto currency.
This move comes after the Employee Benefits Security Administration (“EBSA”), an agency within the Department of Labor (“DOL”), published Compliance Assistance Release No. 2022-01 (“Release”) on March 10, 2022. In the Release, EBSA explains that because of the “early stage in the history of cryptocurrencies, the Department has serious concerns about the prudence of a fiduciary’s decision to expose a 401(k) plan’s participants to direct investments in cryptocurrencies, or other products whose value is tied to cryptocurrencies. These investments present significant risks and challenges to participants’ retirement accounts, including significant risks of fraud, theft, and loss.” The Release further details EBSA’s current position regarding speculative and volatile investments, the challenge for plan participants to make informed investment decisions, custodial and recordkeeping concerns, valuation concerns, and the evolving regulatory environment.
Following Fidelity’s announcement, Massachusetts Senator Elizabeth Warren and Minnesota Senator Tina Smith sent a letter to Fidelity asking why the retirement giant chose to “ignore DOL’s ‘serious concerns.’” The Senators also expressed concern about a possible conflict of interest, given that Fidelity “now is both a bitcoin miner and a purveyor of bitcoin[.]”
However, the DOL’s guidance also received backlash. On May 5, 2022, Alabama Senator Tommy Tuberville introduced the Financial Freedom Act, which, according to Senator Tuberville, “would prohibit the Labor Department from issuing a regulation or guidance that limits the type of investments that self-directed 401(k) account investors can choose through a brokerage window. Additionally, the act would hold harmless a 401(k) plan’s decision-makers who authorize individual retirement savers to self-direct their investment choices using a brokerage window.”
As written, the Financial Freedom Act covers much more than cryptocurrency. Currently, the bill has no co-sponsors and is unlikely to gain traction in Congress, nor is it likely that the Employee Retirement Income Security Act of 1974 (“ERISA”) will be amended in response to this issue. However, it has become clear that many desire flexibility regarding the use of cryptocurrency as a retirement investment vehicle, and this is certainly not the end of the debate.
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