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Many US workers save for retirement using tax-deferred retirement plans offered by their employers ('401(k) plans'). Employees using these plans have retirement contributions directly deducted from their paychecks and deposited into a 401(k) account which they have established with an investment firm. Many employers also match employee contributions up to a certain contribution limit, either a defined amount or percentage.
Until now the investment funds to which employees could contribute to in their 401(k) plans were limited to traditional investment products such as mutual funds. Now, however, according to recent reports in the financial press, employees will be able to invest in a new asset class in their retirement accounts - Bitcoin.
Specifically, Fidelity Investments, one of the largest US retirement plan providers, announced it now will allow workers to use their retirement accounts to invest in Bitcoin. Fidelity's plan is subject to certain limitations. First, employers must allow this form of investment. Second, Fidelity will limit Bitcoin investment to 20% of an employee's overall portfolio, with employer's allowed to establish a lower limit.
Fidelity in 2020 managed approximately $2.4 trillion of assets in 401(k) plans. This accounts for upwards of 1/3 of the overall market for 401(k) retirement plans. Accordingly, Fidelity's plan to allow Bitcoin investment would give the asset class a significant boost and could help further establish its legitimacy.
The US Labor Department, the regulator that oversees company-sponsored retirement plans, expresses skepticism and concern. It released in early March guidance indicating substantial concerns about plans such as Fidelity’s which would allow investment in cryptocurrencies. According to the Labor Department, the extreme volatility of cryptocurrencies exposes retirement savers to significant risk and could devastate the retirement plans of workers, especially those nearing retirement age. The Labor Department also raised concerns regarding properly valuing Bitcoin, appropriately establishing custody, and concerns related to proper record keeping.