Senators Raise Concerns About Bitcoin in Retirement Plans

Several U.S. Senators have sent a letter requesting answers from Fidelity on their decision to allow plan sponsors to offer participants exposure to bitcoin.



Fidelity Investments announced in April that it would allow individuals to have a portion of their retirement savings allocated to bitcoin through their retirement plans, leading to praise from some corners and questions from others regarding whether the move is appropriate from a fiduciary standpoint.

Now, U.S. Senate Majority Whip Dick Durbin, D-Illinois, and Senators Elizabeth Warren, D-Massachusetts, and Tina Smith, D-Minnesota, have also taken notice, sending an open letter requesting answers from Fidelity on their decision to allow plan sponsors to offer participants exposure to bitcoin. In their letter, the Senators called the digital asset “unregulated and highly volatile.”

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“We write today to ask why Fidelity, a trusted name in the retirement industry, would allow plan sponsors the ability to offer plan participants exposure to Bitcoin,” the letter states. “While plan sponsors ultimately are responsible for choosing the investments available to participants, it seems ill­ advised for one of the leading names in the world of finance to endorse the use of such a volatile, illiquid and speculative asset in 401(k) plans—which are supposed to be retirement savings vehicles defined by consistent contributions and steady returns over time.”

The Senators questioned why Fidelity would allow those who can save to be exposed to the untested, volatile asset when saving for retirement is already a challenge for so many.

In a statement, Fidelity said its clients continue to have strong interest in digital assets and the blockchain.

“We are proud of the Digital Assets Account as a responsible solution to meet the demands of mainstream interest. In fact, client interest has not only been strong, but also spans across a wide range of industries and company sizes. We are on track to launch our first plan sponsor clients this fall,” the statement says. “We are continuing our respectful dialogue with policymakers to responsibly provide access with all appropriate consumer protections and educational guidance for plan sponsors as they consider offering this innovative service. Consistent with our ongoing dialogue with regulators and policymakers, we are working with them directly.”

For their part, the Senators argued that Fidelity and its peer organizations should focus on solving more fundamental problems.

“Those fortunate enough to have access to a retirement plan may be unable to find space within their household budget to contribute to an employer-sponsored plan, and they may feel that their wages would be better directed to household essentials such as housing costs, childcare, food or transportation,” the letter states. “Some workers, especially younger workers just entering the workforce, might not see the value of participating in an employer-sponsored plan, or may consider retirement a problem worth addressing later in their working life. The above issues are legitimate, complex problems within our retirement system.”

The letter raises various concerns about potential risks and financial dangers posed by digital assets such as bitcoin, noting that the asset topped out at $68,000 in November 2021 before dropping to around $20,000—more than two-thirds off its peak.

“While we appreciate Fidelity’s efforts to help working Americans realize a more secure retirement, this decision is immensely troubling,” the letter continues. “Perhaps most troubling is that in pointing to the risks of investing in Bitcoin on its website and planning to cap plan participants’ Bitcoin exposure to 20%, Fidelity is acknowledging it is well aware of the dangers associated with investing in Bitcoin and digital assets—yet is deciding to move ahead anyway. Retirement accounts must be held to a higher standard, one that Bitcoin and other unregulated digital assets fail to meet. This asset class is unwieldy, immensely complex, unregulated and highly volatile. Working families’ retirement accounts are no place to experiment with unregulated asset classes that have yet to demonstrate their value over time.”

The Senators acknowledged that the underlying technology of blockchain shows promise and has the potential to be used for “innovative and exciting applications,” but they warned that consumers must be wary of the risks associated with bitcoin and other digital assets.

Separately, the U.S. Department of Labor’s Employee Benefits Security Administration has previously published compliance assistance for 401(k) plan fiduciaries considering plan investments in cryptocurrencies, cautioning plan fiduciaries to exercise “extreme care” before they consider the digital assets as options for an investment menu for plan participants.

As EBSA has noted, the Employee Retirement Income Security Act of 1974 requires plan fiduciaries to act solely in the financial interests of plan participants and adhere to the standards of professional care in considering investment options for participants in 401(k) plans.

“At this stage of cryptocurrency’s development, fiduciaries must exercise extreme care before including direct investment options in cryptocurrency,” said Employee Benefits Security Administration Acting Assistant Secretary Ali Khawar.

In June, the U.S. House Committee on Education and Labor heard testimony from Labor Secretary Marty Walsh, where he discussed the DOL’s guidance on crypto in retirement.

“We made a recommendation because we were concerned about employees having 20% of their retirement savings put in cryptocurrency,” Walsh said. “Our role is to make sure that we’re protecting the rights of American workers and the investments going in.”

DOL Proposes Qualified Professional Asset Manager Exemption Changes

The Labor Department’s proposed amendment to a widely utilized prohibited transaction exemption is meant to ensure the exemption continues to protect plans, participants and beneficiaries.

On Wednesday, the U.S. Department of Labor’s Employee Benefits Security Administration announced a proposed amendment to the Class Prohibited Transaction Exemption 84-14.

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As the DOL’s summary announcement about the proposal notes, the exemption at issue is commonly referred to as the “qualified professional asset manager exemption.” The amendment’s stated purpose is to ensure the exemption continues to protect plans, participants, beneficiaries, individual retirement account owners and their interests.

“The QPAM Exemption permits various parties who are related to plans to engage in transactions involving plan and individual retirement account assets if, among other conditions, the assets are managed by QPAMs that are independent of the parties in interest and that meet specified financial standards,” the announcement states. “Since the exemption’s 1984 creation, substantial changes have occurred in the financial services industry. These changes include industry consolidation and the increasing global reach of financial services institutions in their affiliations and investment strategies, including those for plan assets.”

The amendment would protect plans and their participants and beneficiaries by, among other changes, addressing “perceived ambiguity” as to whether foreign convictions are included in the scope of the exemption’s ineligibility provision. The amendment further expands the ineligibility provision to include additional types of serious misconduct, and it focuses on mitigating potential costs and disruption to plans and IRAs when a QPAM becomes ineligible due to a conviction or participates in other serious misconduct.

Other changes the amendment would make include an update of the asset management and equity thresholds in the actual definition of “qualified professional asset manager” and the addition of a standard recordkeeping requirement that the exemption currently lacks. Finally, the amendment seeks to clarify the requisite independence and control that a QPAM must have with respect to investment decisions and transactions. 

In the DOL’s announcement, Ali Khawar, acting assistant secretary for employee benefits security at EBSA, called the proposed amendment “overdue.”

“The proposed amendment provides important protections for plans and individual retirement account owners by expanding the types of serious misconduct that disqualify plan asset managers from using the exemption, and by eliminating any doubt that foreign criminal convictions are disqualifying,” Khawar said. “The exemption also provides a one-year period for a disqualified financial institution to conduct an orderly wind-down of its activities as a QPAM, so plans and IRA owners can terminate their relationship with an ineligible asset manager without undue disruption.”

The full text of the rule amendment proposal is here.

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