The Rosenbaum Law Firm P.C. Blog

Plan sponsors offering bitcoin in-plan as part of a plan investment lineup would expose the plan, retirement plan committee, and plan participants to many risks, says Jerry Schlichter, managing partner at Schlichter Bogard & Denton, who is well known for suing plan sponsors for fiduciary breach.

I don’t handle plan sponsors big enough to get sued by Schlicter, but I respect his opinion, and I assure you, he is looking for larger plans that will offer it.

Until the Department of Labor says it’s OK, I would tell every plan sponsor I know that crypto and a 401(k) plan shouldn’t mix.

It’s no surprise that U.S. Sen. Elizabeth Warren (D-Mass.) is expressing concerns about Fidelity Investment’s plan to allow Bitcoin in 401(k) retirement plans.

Warren asked Fidelity “about the appropriateness” of its plans and mirrored the concern of the Department of Labor (DOL) about bitcoin’s volatility, describing investing in crypto as “a risky and speculative gamble.”

Knowing a thing or two about Warren’s background, this isn’t surprising and the debate over Fidelity and the DOL views on crypto investing will continue.

My latest article on JDSupra.com can be found here.

One of the reasons I’ve stayed out of trouble in the retirement plan space is that I haven’t strayed too close to the sun. I’ve avoided trouble by not pushing the boundaries of the rules and regulations promulgated by the Internal Revenue Service and the Department of Labor (DOL).

What Fidelity has done with trying to offer cryptocurrency in a 401(k) plan despite the DOL’s warning on it, is different from what you and I can do. Fidelity can afford to butt heads with the DOL and they have enough weight in the industry, that they can change the minds of the DOL’s decision-makers.

I was invited to speak at a statewide conference on pooled employer plans. It was the first time I wore a suit in more than two years. I would have worn my New Yor Rangers jersey if I could have.

I had an enjoyable time, being a part of that panel and despite the good time, I noticed that attendance there was still an issue. While attendance at my That 401(k) Conference has been on the low side, it was interesting to see that such a well renowned, statewide organization had similar issues. Despite a required vaccination policy for all attendees, it was still not enough to get rear ends in seats. I think as long as we have COVID and get emails on how an attendee discovered they had it, I think packing meetings and conferences with attendees is going to be a tough issue.

As a sole proprietor, time is limited. As far as drafting articles about legislation, I just don’t have time. I could analyze SECURE 2.0, but I think it’s irrelevant to my business until it becomes law. Despite overwhelmingly supporting the House of Representatives, SECURE 2.0 is still in limbo.

There is no indication when the Senate will take it up or will they ever. I remember when Roth 401(k) was being discussed for legislation, that was 1999, two years before it became law. So until SECURE Act 2.0 becomes law, I have things to do.

People are scratching their heads, the Department of Labor (DOL) had grave concerns over offering crypto in 401(k) plans, and less than a week later, Fidelity announced their plan to offer Bitcoin as an option for plan sponsors that want to offer it.

Fidelity announced it because they had this planned for months and the DOL’s guidance is just a directive, not a regulation. Back in the early 2000s and late 1990s, firms were pushing cash balance plans and the Internal Revenue Service was stressing up and down that they were not qualified plans. What happened? The promulgation of code sections and regulations allowed it. So Fidelity’s goal is to push the DOL to offer regulations and directives that will allow crypto within 401(k) plans. I think crypto in 401(k) plans is a bad idea, won’t mean that the DOL won’t allow it for good.

The Department of Labor criticized Fidelity Investments’ plan to allow investors to put bitcoin in their 401(k) accounts.

“We have grave concerns with what Fidelity has done,” Ali Khawar, acting assistant secretary of the Employee Benefits Security Administration. Khawar stressed the speculative nature of cryptocurrency and the hype around the fear of missing out as reasons his department is concerned about the move. Khawar has said that crypto has “intriguing use cases” but needs “maturing” before it’s suitable to be placed into a retirement savings account.

The DOL cites crypto’s volatility, uncertain valuations, and evolving regulatory environment as reasons for concern.

Fidelity Investments will allow investors to put bitcoin (BTC) into their 401(k) retirement savings accounts later this year.

Plan sponsors that would offer it, could place a ceiling on the amount of savings earmarked for bitcoin, with the maximum cap expected to be no more than 20%.

Fees on the bitcoin investments in Fidelity’s 401(k) accounts would range between 0.75% and 0.90% – depending on the size of the plan. An additional trading fee would be levied, which remains undisclosed at writing time.

This decision by Fidelity was done despite the Department of Labor (DOL) issuing a directive that cryptocurrencies were speculative and volatile trading investments with inflated valuations. The DOL expressed “serious concerns” about providers offering cryptocurrencies in retirement plans.

My latest newsletter for retirement plan providers can be found here.