PLANADVISER -May/June 2022 - 32

modern investment menu / cryptocurrency
plan savings as they see fit, " Tuberville wrote in an op-ed on
CNBC's website. " The Labor Department should not be able
to limit the range or type of investments retirement savers
may select. " He said requiring plan fiduciaries to assess
investments offered through a brokerage window and
then to restrict options would be a " massive new regulatory
burden " for retirement plans, which would " be at risk
for heavy-handed enforcement actions. " Like the Chamber
of Commerce, he also criticized EBSA for issuing guidance
" without announcement, " adding that the agency " skirted
the notice and public comment process put in place by
Congress that agencies are required to follow. "
Undeterred by EBSA's warning, just a month after the
guidance was issued, Fidelity Investments announced the
launch of an offering that will allow participants to invest
a portion of their 401(k) in bitcoin. Fidelity said the offering
is a custom plan account that holds bitcoin and short-term
money market investments to provide liquidity.
... he sees cryptocurrencies
as akin to early-stage
investment in tech
companies and other
venture capital investments.
Fidelity was rebuked by U.S. Senators Elizabeth Warren,
D-Massachusetts, and Tina Smith, D-Minnesota, who wrote
in a letter to company CEO Abigail Johnson that " investing
in cryptocurrencies is a risky and speculative gamble, and
we are concerned that Fidelity would take these risks with
millions of Americans' retirement savings. "
Fidelity has drawn considerable attention with its decision
since being the first to announce its intention to allow
crypto investments in its plans. Last June, financial advisers
at retirement investment platform ForUsAll also announced
a platform called Alt401(k) that will enable retirement plans
to offer cryptocurrencies.
ForUsAll co-founder and Chief Investment Officer David
Ramirez acknowledges that cryptocurrency has the potential
to be risky and volatile, which is why, he says, the
company has capped crypto investments at 5% of a participant's
portfolio. ForUsAll also closely monitors allocations,
and it alerts employees when their overall cryptocurrency
allocation exceeds 5% of their portfolio; that way, they can
rebalance into more traditional mutual funds.
" Certainly, plan sponsors have questions about the
statements from the DOL, and we want to make sure they
understand all of the built-in safeguards we've put in place, "
Ramirez says. " Our program really was designed to address
specifically the concerns that were raised by the DOL, and
we're confident we can hold up to that. "
Ramirez says his firm engaged with the department
before creating the Alt401(k) and received feedback that was
incorporated into the offering. He says he expects the platform
to be available during the second quarter of this year.
Education, Guidance and Guardrails
" It's more than just providing access, " Ramirez says. " I think
the question is: How can you provide access thoughtfully?
We're focused on ensuring that access is coupled with
education, guidance and guardrails. "
But why allow participants to invest any of their funds in
an asset class that many consider to be risky and speculative?
For Ramirez, a big reason is " financial inclusion, " as he
sees cryptocurrencies as akin to early-stage investment in
tech companies and other venture capital investments.
" Venture capital as an asset class has been out of reach
for the vast majority of everyday Americans, " he says.
" Technology companies are staying private longer, meaning
that Americans are not able to invest in those companies
during some of their highest growth periods. " He says he
also believes allowing cryptocurrencies in 401(k) plans will
attract younger plan participants, who, he says, often see
retirement plans as increasingly irrelevant.
Still, Buckmann says, the threat of an EBSA investigation
will scare off many sponsors and advisers from offering
digital asset investments in their lineups. " Even fiduciaries
that feel they can justify limited crypto exposure as prudent
will not want to become part of an EBSA investigation, " Buckmann
says. " Unless the EBSA guidance changes, I would not
expect many plans to sign up for the Fidelity program. "
If plan fiduciaries decide to dabble in crypto, she says, they
should keep in mind that there are different routes to exposure,
with different risk profiles, and they should limit the
percentage of a participant's account that may be exposed.
Safe custody is also key to consider, she says. Plan advisers
and sponsors might want to look into a method called cold
storage, which is intended to control risks such as accounts
being hacked or lost because of a missing password, she
explains. With cold storage, a digital wallet is stored on a
platform that is not connected to the internet; the platform
protects the wallet from vulnerabilities.
" It will be very hard to justify direct investments under "
the EBSA guidance, Buckmann observes. " However, there
are exchange-traded funds with prospectuses that invest in
cryptocurrencies, and funds that invest in futures contracts,
to give two examples of situations in which plans might get
exposure to cryptocurrency. "
Plan advisers also can find out whether a mutual fund
holds cryptocurrency as an underlying investment by
checking the fund's Form N-PORT filed with the Securities
and Exchange Commission. She cautions, though, that the
form has a miscellaneous category, which may or may not
include crypto investments.
Not only is the controversial EBSA guidance likely to
keep many sponsors at bay, but participants may note that
the price of bitcoin continues to tumble, dropping in price
by nearly 60% from its all-time high of $68,790 this past
November to $28,366 as of May 11. -Michael Katz
32 | planadviser.com May-June 2022
http://www.planadviser.com
PLANADVISER -May/June 2022

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