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Labor Department says crypto puts Americans' retirement savings at risk as Fidelity lets Bitcoin in 401(k) pension plans

America's 401(k) retirement plans are allowing a crypto portion (image: Executium/Unsplash)
America's 401(k) retirement plans are allowing a crypto portion (image: Executium/Unsplash)
After a smaller 401(k) provider announced they are letting clients hold up to 5% of retirement savings in crypto, the Fidelity Investment behemoth one-upped the offer by allowing pension plan subscribers to save up to 20% of their nest egg in bitcoins. The move prompted a backlash from the Labor Department which advises against placing Americans' retirement savings at unnecessary risk.

The US Department of Labor which is in charge of overseeing the risk ratio in Americans' retirement accounts, has spoken against the trend of letting crypto in 401(k) pension plans. The advisory comes hot on the heels of Fidelity Investments, one of the largest 401(k) managers in the US, saying it will let people allocate up to 20% of their savings for bitcoins later this year. It will be up to the employer to choose the exact portion of the 401(k) they are willing to convert to crypto holdings. According to Dave Gray, head of workplace retirement offerings and platforms at Fidelity, "we have seen growing and organic interest from clients," particularly from employers with a younger workforce.

Since the money manager has more than 20 million plan participants and oversees US$2.7 trillion in assets, the Labor Department's acting assistant secretary of the Employee Benefits Security Administration Ali Khawar expressed "grave concerns with what Fidelity has done." Back in March, the Department of Labor issued a guidance that advised against an overreliance on crypto in pension plans that would put Americans' retirement savings at unnecessary risk. At the time, money managers like Fidelity balked at the guidelines that they thought were too aggressive in their restrictiveness, prompting a reply from Mr. Khawar:

We didn’t think we could view ourselves as a responsible regulator and say nothing. Should we have waited until people lost most of their retirement savings until opining on it? I don’t view this guidance as a forever and ever thing. It is focused on this stage of development.

The Labor Department's guidance against crypto-laden 401(k) plans expresses "serious concerns about plans’ decisions to expose participants to direct investments in cryptocurrencies or related products, such as NFTs, coins, and crypto assets," and advises employers to "exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu," if they want to "square their actions with their duties of prudence and loyalty" under US pension law.

Fidelity, however, defended its decision to let Americans hold 20% of their retirement savings in bitcoins, placing it on a potential showdown path with the Labor Department's crypto investment guidelines:

At a time when foundations, endowments and now pension plans are investing in cryptocurrency, blocking access puts everyday Americans at a structural disadvantage, deepening an already wide retirement gap.

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Source(s)

WSJ (paywall)

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> Notebook / Laptop Reviews and News > News > News Archive > Newsarchive 2022 04 > Labor Department says crypto puts Americans' retirement savings at risk as Fidelity lets Bitcoin in 401(k) pension plans
Daniel Zlatev, 2022-04-29 (Update: 2022-04-29)