ESG, cryptocurrency discussed a lot but not always adopted in 401(k) plans due to regulatory pingpong

On cryptocurrency, Fidelity made news in April when it announced a program where participants in DC clients’ plans can place up to 20% of their 401(k) plan accounts in bitcoin in a stand-alone investment called a digital assets account. Fidelity’s announcement came six weeks after the Labor Department issued a March 10 “compliance assistance release” telling 401(k) plan fiduciaries to “exercise extreme care” before selecting cryptocurrency as an investment option.

Notably, the price of bitcoin, the largest cryptocurrency, has fallen more than 50% in 2022.

Dave Gray, Boston-based head of workplace retirement offerings and platforms at Fidelity, said in an email that Fidelity “continues to have strong interest for 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.”

MicroStrategy, a business intelligence solutions provider, will be the first employer to add Fidelity’s digital asset account in a retirement plan.

Other DC managers, like Vanguard, don’t expect to offer a cryptocurrency option.

“We focus on offering investment options that offer enduring risk premia, have an enduring client demand and fit into a client portfolio that’s going to be able to drive a long-term outcome,” Mr. Brancato said. “We’ve seen this movie before around hot products and money flowing in and then money flowing out, and those environments are not conducive to long-term investor outcomes and that’s what drives us.”

David O’Meara, New York-based senior investment consultant with Willis Towers Watson PLC, doesn’t “expect crypto to be a meaningful investment with defined contribution plans, certainly in the next few years. In the long term, perhaps. Crypto assets are still largely in the hands of very few people and so it’s not been adopted in an institutional investment portfolio to a meaningful degree.”

He added, “We question as to whether or not any defined contribution participant can knowledgeably invest in crypto assets and understand what risks and opportunities there are in those funds.”