Fidelity Investments plans to allow investors to set up a bitcoin account in their 401(k)s, the first major retirement plan provider to do so.

Employees won’t be able to start adding cryptocurrency to their nest egg right away, but later this year the 23,000 companies that use Fidelity to administer their retirement plans will have the option to put bitcoin on the menu. The endorsement of the nation’s largest pension plan provider suggests that crypto investing will become more mainstream, but whether employers will embrace it for their workers remains to be seen.

Fidelity’s decision comes a month after the US Department of Labor raised concerns about the inclusion of cryptocurrencies in pension plans. It’s also been a tough time for the stock market, with the S&P 500 having fallen nearly 10% this year, in part due to rising interest rates. Bitcoin is notoriously volatile and has lost over 40% of its value since peaking in November.

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“We need a diverse set of investment products and solutions for our investors,” said Dave Gray, head of workplace retirement offerings and platforms at the Boston-based firm. “We expect cryptocurrency to shape how future generations think about investing in the short and long term.”

Under the plan, Fidelity would allow savers to allocate up to 20% of their nest egg to bitcoin, although this threshold could be lowered by plan sponsors. Gray said he would initially be limited to bitcoin, but he expects other digital assets to become available in the future.

To date, investing in crypto is virtually non-existent in 401(k) plans. A small company that handles smaller 401(k) plans is allowing workers in some of the plans it administers to invest up to 5% of their 401(k) contributions in bitcoin and other cryptocurrencies. currencies.

Fidelity’s adoption of bitcoin could spark wider acceptance among employers.

“We’ve seen growing, organic interest from customers,” particularly those with younger employees, Gray said, adding that “a number are being evaluated” across a wide range of businesses. industries.

The company administers plans with more than 20 million members and $2.7 billion in assets under administration. Fidelity also has a growing presence in the cryptocurrency space, including a trading and custody platform it launched in 2018 that caters to hedge funds and other sophisticated investors.

Fidelity’s move comes at a time of heightened interest in digital currencies. Fidelity estimates that approximately 80 million US individual investors own or have invested in digital currencies. Some institutional investors, including some US university endowments, have reportedly invested in cryptocurrencies or funds that buy them, or taken stakes in companies in the fast-growing sector.

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Still, there are significant hurdles that could block widespread adoption of bitcoin in 401(k) menus. The U.S. Department of Labor, which regulates company-sponsored retirement plans, issued guidelines on March 10 warning employers to “exercise extreme caution before considering adding a cryptocurrency option to the investment menu of a 401(k) plan,” a department press release read.

Employers offering cryptocurrencies should expect questions from regulators “about how they can reconcile their actions with their duties of care and loyalty” under U.S. pension law, the department said.

Ali Khawar, acting assistant secretary of the Labor Department’s Benefits Security Administration, wrote that “at this early stage in the history of cryptocurrencies,” the department “has serious concerns about the decisions of plans to expose participants to direct investments in cryptocurrencies or related products, such as NFTs, coins and crypto-assets.”

Fidelity, along with various trade groups that represent the financial services industry, have written letters calling on the Department of Labor to withdraw the guidelines, according to Gray and industry attorneys.

Some predict that employers will avoid cryptocurrency in 401(k) plans.

Michael Kreps, director of the Groom Law Group, which specializes in pension law, said Labor Department advice likely had a chilling effect on “any conversations that were going on” with employers about adding investments. in cryptocurrency to 401(k) menus. A continuing trend of 401(k) fee litigation also creates “a huge incentive for employers not to take risks with the 401(k),” he said.

Lew Minsky, president of the Defined Contribution Institutional Investment Association, a research and advocacy organization for investment managers, consultants and others in the 401(k) industry, said he was unaware of any ‘no plans by members of his organization to make cryptocurrency available. “There is too much volatility,” he said.

Companies have shown little interest in letting their employees rely on cryptocurrency for retirement security. About 2% of 63 employers surveyed in a recent Plan Sponsor Council of America survey said they would consider adding cryptocurrency to their 401(k) menu.

Proponents of adding a small dose of cryptocurrency to a portfolio claim that it can increase expected returns without increasing overall risk. Some believe that crypto can serve as a hedge against inflation.

Gray said workers at companies who sign up for the new offering can choose to transfer up to 20% of their account balance to a digital asset account containing bitcoin and using the institutional trading and custody platform. of Fidelity. Employees can also invest up to 20% of each employee contribution in bitcoin, although employers can impose lower limits.

Participants who invest in bitcoin will encounter pop-ups containing educational information about crypto when logging into their online accounts. When the balance of bitcoin holdings exceeds 20% of the value of a wallet, the employee would not be able to transfer additional monies to the account from other investments in the 401(k) plan; the employee can continue to make employee contributions. Approximately 5% or less of the bitcoin account will be held in a short-term money market fund to provide liquidity to facilitate day-to-day transactions. Gray said fees on the account would be between 0.75% and 0.9%, depending on the client, not including trading fees.

Fidelity declined to say whether it plans to integrate digital assets into its target date funds. These funds serve as default investments for employees who are automatically enrolled in 401(k) plans and attract the lion’s share of new contributions.

ForUsAll, a 401(k) provider, last year announced an agreement with the institutional arm of Coinbase Global Inc., a major cryptocurrency exchange, that will allow workers in the plans it administers to invest up to 5% of their 401(k) contributions in bitcoin, ether, litecoin and others through a self-managed digital asset window. Founded in 2012, ForUsAll provides automated 401(k) administration, low-cost mutual fund menus, and access to human advisors.

Fidelity’s interest in cryptocurrencies began nearly a decade ago, when Abigail Johnson, now president and CEO, began holding weekly internal meetings to discuss digital assets and blockchain technology. . The company started mining bitcoin in 2015. Later, it added a link on retail customer accounts to Coinbase, the crypto exchange, to track their holdings. In 2020, he opened his own crypto fund for wealthy clients.

—Justin Baer contributed to this article.

Write to Anne Tergesen at [email protected]

This article was published by The Wall Street Journal, part of the Dow Jones