Fidelity’s New 401(k) Offering Will Invest in Bitcoin

Fidelity, the nation’s largest provider of 401(k) plans, said on Tuesday that it would enable its participants to put a slice of their retirement money into Bitcoin — if their employers are willing to allow it.

The announcement could put millions of people closer to direct investment in Bitcoin this summer without having to set up an account on a cryptocurrency exchange. But regulators have already said they’re skeptical of the idea: Last month, the Department of Labor, which oversees workplace retirement plans, said it would cast a critical eye on plans that added digital assets to their investment menus.

Fidelity — which held $2.4 trillion in 401(k) assets in 2020, or more than a third of the market, according to the research firm Cerulli Associates — said it was introducing a digital assets account to hold Bitcoin. The account fee will be between 0.75 percent and 0.90 percent of assets, depending on several factors including the employer and the amount invested. An additional trading fee, not yet disclosed, will be “competitively priced,” the firm said.

“We started to hear a growing interest from plan sponsors, organically, as to how could Bitcoin or how could digital assets be offered in a retirement plan,” Dave Gray, head of workplace retirement offerings and platforms at Fidelity Investments, said in an interview.

MicroStrategy, a business analytics firm, has already signed on, Mr. Gray said, and Fidelity is in discussions with other employers.

The digital assets account will become widely available in the middle of this year, Fidelity said. It will be integrated into the 401(k) investment menu, just like more traditional mutual funds; investors may elect, for example, to dedicate a certain percentage of their contributions to the Bitcoin account. That percentage will be limited: The employer will determine the ceiling, but the platform won’t permit allocations of more than 20 percent, although that number could change.

A growing number of traditional investment options that provide exposure to cryptocurrency have recently hit the market, including an array of exchange-traded funds last year. But Fidelity’s move is more striking because it would let Americans place bets on the emerging and highly volatile sector with their sacred retirement money.

The Labor Department didn’t go as far as banning crypto from retirement plans when it issued a compliance assistance document last month, but it reminded plan overseers — often the employer, who must act solely in the best interest of participating workers — that they were responsible for choosing “prudent” options. And it strongly suggested that cryptocurrencies didn’t yet appear to meet that bar.

“These investments present significant risks and challenges to participants’ retirement accounts, including significant risks of fraud, theft and loss,” the department said in its compliance release. It added that it would conduct an investigative program aimed at plans that offered crypto and related investments.

The agency said retirement investors could misunderstand the risks of cryptocurrencies and raised concerns about valuation, custodial and record-keeping procedures.

In a letter to the Labor Department this month, Fidelity said the agency hadn’t provided any guidance on how plan fiduciaries should address those concerns or fulfill their duties when considering plan investments in cryptocurrencies. The firm urged the department to work with plan overseers to develop steps to meet those obligations.

“The Department of Labor is substituting its own opinion on crypto for what rightly belongs to plan sponsor fiduciaries,” said Mr. Gray, who said Fidelity’s new account addressed many of the agency’s concerns.

Fidelity said that the digital account, for example, would be valued daily and held on its own custody platform to ensure “institutional-grade security” — and that robust educational materials were baked into the offering.

But there’s little that can be done about Bitcoin’s volatility: After peaking near $69,000 on Nov. 9, it has been recently trading at about $40,000.

Though Fidelity is best known for its vast retirement business, it was one of the earlier entrants in the cryptocurrency space. In 2018, it began offering trading and custody of digital assets for large institutional customers, and in 2020, it introduced a private Bitcoin fund for so-called accredited investors. Its Fidelity Advantage Bitcoin E.T.F. became available late last year in Canada.