A small group of workers will find something new in their 401 (k) plan starting in July: the ability to invest in cryptocurrency.
ForUsAll Inc., a 401 (k) provider, announced earlier this month an agreement with the institutional arm of Coinbase Global Inc.,
a leading cryptocurrency exchange, which will allow workers in the plans it administers to invest up to 5% of their 401 (k) contributions in bitcoin, ether, litecoin and others.
Executives at ForUsAll will not say how many of the company’s 400 employer clients have so far signed up for the cryptocurrency platform. Founded in 2012, the company provides automated 401 (k) administration, low cost mutual fund menus, and access to human advisors.
With just $ 1.7 billion in pension plan assets, ForUsAll represents a small portion of the $ 22 trillion retirement account market. But its adoption of crypto comes at a time when the general public is more interested in digital currencies.
That said, crypto investing is virtually unobtainable in 401 (k) plans and individual retirement accounts at the moment.
“There’s far too much volatility,” said Lew Minsky, president of the Defined Contribution Institutional Investment Association, a research and advocacy organization for investment managers, consultants and others in the 401 (k) industry. ).
Bitcoin, for example, lost around 40% of its value in just two months after hitting a record high in April.
The 401 (k) industry has “meaningful conversations” about adding alternative investments, including private equity, to 401 (k) plans, Minsky said. Currently, 1% of the assets of custom designed target date funds in 401 (k) plans are in private equity and 2% are in hedge funds, according to the DCIIA. Mr Minsky said he was not aware of any plans by members of his organization to make the cryptocurrency available.
Companies such as Fidelity Investments and Charles Schwab Corp. do not allow clients to buy or sell cryptocurrencies in taxable accounts or IRAs. But they can buy shares in trusts that invest in cryptocurrencies from companies like Grayscale Investments LLC. Fidelity has filed an application with the Securities and Exchange Commission to offer a cryptocurrency exchange-traded fund.
Participants in certain 401 (k) plans that use Fidelity and Schwab as an administrator may invest in certain grayscale products if their employer offers a brokerage window, which allows participants to purchase a range of stocks, mutual funds, ETFs and other securities. .
Proponents of adding a small dose of cryptocurrency to a portfolio argue that it can increase expected returns without increasing overall risk. Some believe that crypto can be used as a hedge against inflation.
“This is just another asset class,” said Mike Alfred, chief strategy officer at NYDIG, a financial services and technology company that provides bitcoin investments to institutions.
Previously a co-founder of a company that publishes data on 401 (k) plans, Alfred said cryptocurrencies have started to appear in portfolios managed by institutional investors.
New Zealand’s KiwiSaver retirement savings program and some US university foundations have reportedly invested in cryptocurrencies or funds that buy them, or have taken stakes in companies in the fast-growing sector.
Paul Selker, president of Spark Street Digital, which is live streaming events that included the launch of Pete Buttigieg’s presidential campaign, said he was drawn to the cryptocurrency option ForUsAll will offer because he believes that its 14 employees, many in their twenties and thirties, will be “more engaged” with the 401 (k) plan. He hopes they will increase their savings from their current average rate of 8.5% of salary.
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Mr Selker said he believes the “safeguards” ForUsAll has built into the service will help his employees invest prudently. “They won’t leave my YOLO Dogecoin people on the moon,” he said of ForUsAll, which Spark Street Digital hired in 2015, when it launched a 401 (k) plan.
David Ramirez, chief investment officer at ForUsAll, said employees at companies who sign up for the new offering can choose to transfer up to 5% of their account balances to a self-directed cryptocurrency window that uses the platform. – Coinbase’s institutional trading form, where they will have access to around 50 cryptocurrencies. Employees can also invest up to 5% of each payroll contribution in cryptocurrency.
Mr Ramirez said that participants who invest in cryptocurrency should acknowledge having read disclosures explaining that it is a volatile asset. “Our advice is not to trade anything overnight, be it a stock or a crypto,” he added.
The company plans to send alerts to participants when the value of their crypto investments exceeds 5% of the balance, urging them to sell cryptos and shift the profits into stocks and bonds. When the balance of crypto holdings exceeds 5% of the value of a wallet, an employee would no longer be allowed to transfer their current balance to it, although current contributions may continue.
ForUsAll said it plans to add small allocations to other alternative investments over time, including private equity, venture capital and real estate.
Write to Anne Tergesen at [email protected]
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