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

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

Mr. Khawar’s group operates within the Ministry of Labor to regulate company-sponsored retirement plans. In the interview, he said that he views cryptocurrencies as speculative. “There is a lot of hype around,” he said, “you have to get in now because you’d be left behind otherwise.”

Mr. Khawar said he received an alert from Fidelity the day before the company revealed its plan to give 23,000 companies using 401(k) services the option to put bitcoin on the list.. In the April 26 disclosure, Fidelity said that starting later this year, workers can allocate up to 20% of their nest eggs to bitcoin. This threshold can be lowered by employers.

“For the average American, the need for retirement savings in old age is great,” said Mr. Khawar. “We’re not talking about millionaires and billionaires who have too many other assets to pull off.”

Corporations, individuals, and some local governments have recently begun to adopt digital currencies for daily transactions, business, and some commerce. But there are still some skeptics in the business community, especially given price volatility and given that the federal government has yet to set out a significant regulatory framework. Last month, the Biden administration directed agencies across the federal government to report on digital currencies and consider new regulations.

Responding to the Department of Labor’s comments, Fidelity said its Bitcoin offering “represents the company’s continued commitment to developing and expanding its digital asset offering amidst exponentially increasing demand for digital assets across investor sectors, and we believe this technology and digital assets will represent a significant part of the financial industry’s future.”

WSJ’s Dion Rabouin explains why Wall Street is now betting so heavily on cryptocurrencies and what this means for the new asset class and its future. Composite photo: Elizabeth Smiloff

Dave Gray, Fidelity’s head of workplace retirement offerings and platforms, said earlier this week that the offer will be limited to bitcoin initially. It is expected that other digital assets will be available in the future.

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The move by Fidelity, which manages 401(k) accounts similar to more than 20 million participants, came weeks after the Labor Department published guidelines on March 10 highlighting serious concerns about cryptocurrency in 401(k) plans. The agency cited factors including market volatility and the lack of widely accepted valuation methodologies that investors can rely on to evaluate cryptocurrency prices. Since November, Bitcoin has lost about 40% of its value.

In its guidance, the department said employers offering cryptocurrency should expect regulators to ask “how to align their actions with their duties of prudence and loyalty” under US pension law.

In the Fidelity plan outlined this week, the company said it plans to limit new transfers and contributions to its bitcoin offering to 20% from 401(k) account balances and salary contributions.

It is too early for cryptocurrency to play a role in Americans’ retirement savings, says Ali Khawar, of the Department of Labor’s Employee Benefits Security.


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Department of work

Mr. Khawar said he and his colleagues scheduled a conversation with Fidelity to discuss some of the concerns highlighted in the March 10 directive. Among the department’s specific concerns was the 20% figure, according to a senior administration official.

Mr. Khawar said the Department of Labor had similar concerns about an offer from ForUsAll Inc. , a 401(k) company that last year announced a deal with the institutional arm of crypto exchange Coinbase Global Inc. This transaction will allow employees of the plans it manages to invest up to 5% of their 401(k) contributions in bitcoin, ether, litecoin and more via the self-directed digital asset window.

ForUsAll said it protects investors by offering education and barriers that limit the allocation of digital currency at 5%.

“At a time when foundations, endowments and now pension schemes are investing in cryptocurrency, the access ban puts ordinary Americans at a structural disadvantage, deepening an already wide retirement gap,” the company said in a statement.

Mr. Khawar said the Department of Labor is not banning cryptocurrency in 401(k) seconds. He said that if employers believe they can defend the assets and address the agency’s concerns, “that’s their decision.”

The Department of Labor says employers offering cryptocurrency should expect questions from regulators.


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Liu Jie / Xinhua / Zuma Press

Another risk identified by the Department of Labor regarding investing in cryptocurrency is the uncertainty surrounding its regulations. Mr. Khawar said he believes that cryptocurrencies have interesting use cases, but that they need to “mature” before people can put their retirement savings into them, including the development of consumer protection.

Responding to industry arguments that the Department of Labor’s March 10 guidance is overly aggressive, since it affects the merits of a particular asset class, Mr. Khawar said, “We didn’t think we could look at ourselves as a responsible regulator and say nothing. Should we have waited until it loses?” People most of their retirement savings until it is expressed?”

“I don’t see this directive as a forever and ever thing,” he said. “It’s focused on this stage of development.”

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

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