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Labor Department Criticizes Fidelity’s Plan to Put Bitcoin on 401(k) Menu


“We are very concerned about what Fidelity has done,” Ali Khawar, acting assistant secretary of the Employee Benefits Security Administration, said in an interview with The Wall Street Journal.

Mr. Khawar’s team works inside the Labor Department to regulate company-sponsored retirement plans. During the interview, he said that he considers cryptocurrencies speculative. “There’s a lot of hype going around, ‘You have to get in now because otherwise you’ll be left behind,’” he said.

Mr. Khawar said he received the notice from Fidelity a day before the company revealed plans to give 23,000 companies using its 401(k) service the option to put bitcoin on the menu.. In the April 26 disclosure, Fidelity said that starting later this year, workers could allocate up to 20% of their nest eggs to bitcoin. That threshold can be reduced by employers.

WSJ’s Dion Rabouin explains why Wall Street is betting big on crypto right now and what that means for the new asset class and its future. Photo compilation: Elizabeth Smelov

“For the average American, the need to save for retirement in old age is significant,” Khawar said. “We’re not talking about millionaires and billionaires who have tons of other assets to draw from.”

Companies, individuals and some local governments have recently started using digital currencies for transactions, day-to-day business and some transactions. But there are still some skeptics in the business community, especially in light of price volatility, and argue that the federal government has yet to map out a major regulatory framework. Last month, the Biden administration directed agencies in the federal government to generate reports on digital currency and review new regulations.

In response to the Labor Department’s comment, Fidelity said its bitcoin offering “represents the company’s continued commitment to the development and expansion of its digital asset offerings amid demand.” There is growing interest in digital assets across investor segments and we believe this technology and digital assets will represent a large part of the future of the financial industry. ”

Dave Gray, head of workplace retirement platforms and services at Fidelity, said earlier this week the initial offering will be limited to bitcoin. He hopes other digital assets will be offered in the future.

The move by Fidelity, which manages 401(k) style accounts for more than 20 million participants, comes weeks after the Labor Department released guidance on March 10 highlighting serious concerns about electricity bills. death in a 401(k) plan. The agency cited factors including market volatility and the lack of widely accepted valuation methods that investors can rely on to gauge cryptocurrency prices. Since November, bitcoin has lost about 40% of its value.

Employers offering crypto should expect questions from regulators “about how they might address their actions with a duty of discretion and loyalty” under US retirement law, the department said. department said in its instructions.

In Fidelity’s plan outlined this week, the company said it intends to limit transfers and new contributions to its bitcoin supply to 20% of its 401(k) account balance. and salary contributions.

Khawar said he and his colleagues had scheduled a chat with Fidelity to discuss some of the concerns highlighted in the March 10 guidance. Among the department’s specific concerns is the 20% figure, according to a senior ministry official.

Mr. Khawar said the Labor Department had similar concerns with an offer from ForUsAll Inc., a 401(k) supplier that announced a deal last year with the institutional branch of the cryptocurrency exchange Coinbase Global Inc. That deal will allow workers in the plans it manages to invest up to 5% of their 401(k) contributions in bitcoin, ether, litecoin, and others through the asset window. self-directed digital.

ForUsAll says it protects investors by providing education and railing that limits digital currency allocations to 5%.

The Labor Department said employers offering crypto should expect questions from managers.


Photo:

Liu Jie / Xinhua News Agency / ZUMA Press

“At a time when foundations, endowments, and now retirement plans are investing in cryptocurrencies, blocking access puts everyday Americans at a financial disadvantage,” the company said in a statement. structure, deepening an already wide retirement gap,” the company said in a statement.

Mr. Khawar said the Labor Department does not ban cryptocurrencies for 401(k) seconds. He said if the employer thinks they can make a case for the property and has addressed the agency’s concerns, “that’s their decision.”

Another risk that the Department of Labor raises regarding crypto investments is the uncertainty surrounding its regulation. Mr. Khawar said he believes crypto has compelling use cases, but it needs to “ripe” before people can put their retirement savings into it, including developing measures protect consumers.

Responding to industry arguments that the Labor Department’s March 10 guidance is overly aggressive, as it is based on the value of a particular asset class, Mr Khawar said, “We don’t think we have a could consider itself a responsible regulator and say nothing. Should we wait until people lose most of their retirement savings until opting in?”

“I don’t consider this guide to be a thing of forever,” he said. “It’s focused on this stage of development.”

Write to Anne Tergesen at anne.tergesen@wsj.com

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