With all the buzz around cryptocurrency, well, I’m sure it won’t be surprising that someone wants to bring it into 401 (k) s.

Specifically, recently ForUsAll, a retirement investment platform for small businesses, announced the introduction of the Alt 401 (k) – a platform that not only allows employers to provide options for investment alternatives under the 401 (k) plans, but it has partnered with cryptocurrency. the Coinbase Institutional platform will offer cryptocurrency as the plan’s first alternative investment.


Now, I admit I have some skepticism about such “innovations” when it comes to 401 (k) investors.[1] In an industry that has long encouraged, and for good reason, innovations like automatic enrollment and target date funds as effective ways to help workers make prudent and rational retirement savings decisions (which many do not or will not take on their own) – well giving them the opportunity to “splash around” in the wild world of cryptocurrency investing with their retirement savings seems – well, “cray cray”.

This particular platform has certain limits – basically it puts that option in a Self-Directed Brokerage Account (SDBA), and employees are only allowed to transfer (up to) 5% of their balances into that “secure account.” which has exposure to certain cryptocurrencies “where they can“ buy, hold and sell over 50 different cryptocurrencies. ”Oh, and we are sure that“ employees will benefit from ongoing monitoring and training from the wallet ”, although it is not clear how or if this is different from the usual messages.[2] They will apparently receive some sort of warning when / if their holdings exceed this 5% threshold.

It turns out that this “innovation” is being touted as a way to level the playing field for retail investors with the options usually available to large investors, including pensions and endowments. And, especially in an age when the investing headlines seem dominated by the impact of so-called “meme” stocks, there is certainly concern that the average investor will be prevented from making a lot of money.

In fact, it is said that this type of option, especially given the recent surge in interest in cryptocurrencies, could stimulate employee interest in the plan and retirement savings, especially among young savers. . Indeed, a current client of the ForUsAll platform cited in a recent WSJ article is hoping its 14 employees will increase their current savings rate in response to the option, once available.

Indeed, the arguments in favor of allowing a more “exotic” investment – or at least an investment outside the range of investments of the regular regime – within the framework of a self-managed brokerage structure approach. are not new. Here, as in other SDBAs, the option is “walled”, with limits placed on the amount and restrictions on “who” via education and disclosures – and likely additional fees paid by those who choose. to take advantage of the option. This won’t guarantee missteps, of course, but, as noted above, at least there are guardrails.

SDBAs exist in significant numbers, of course – the Plan Sponsor Council of America’s 63rd annual survey of profit sharing and 401 (k) plans reveals that about a quarter (23.2%) of all plans offer these. options, and nearly 40% of those with more than 5,000 participants do so. That said, their use is noticeably limited – only 1.5% of plan assets are invested in SDBAs, according to the PSCA survey. Such options are generally positioned as an accommodation for certain specific participants who have the interest (but arguably not always the insight) to pursue a wider range of investment alternatives with their retirement savings – often supported, if not encouraged. , by an investment advisor outside the plan.

However, there are some risks associated with these accounts, and not just with the people who use them. In 2014, the DOL Employee Benefit Security Administration requested information on the use of SDBAs, apparently in an attempt to offer perspective, if not advice, but nothing since. On the other hand, and although there have been few court cases directly on the point,[3] plans that do have them were sometimes accorded some judicial “deference” to the rest of their menus, on the pretext that participants who wanted different options could find them through the SDBA.[4]

Of course, the decision to have, keep and operate an SDBA is a plan decision subject to the fiduciary rules of ERISA, which means that it should be made with the sole focus on the best interests of the participants. plan and their beneficiaries. That said, and with all the inherent risks and disclosures, even the addition of such a volatile and misunderstood investment as cryptocurrency could pass this test.

But — and as with all these decisions — choosing to do so should be subject to a test, and the application of which is carefully and thoroughly documented — because at some point in the not-so-distant future, it’s almost certain to be. contested.


[1] Apparently I’m not alone, at least on this particular choice. See “Reader Poll: Bullish and Bearish on Bitcoin. ”

[2] Although in an interview with the the Wall Street newspaper, it should be noted that participants must first acknowledge having read disclosures explaining that cryptocurrency is a volatile asset.

[3] A recent analysis of a court case by Groom Law notes that “the court devoted seven pages of its opinion to the question of whether” the general obligation under ERISA to continuously monitor investments and eliminate those who are reckless ”also applies to window brokerage. But the court did not respond. Instead, the court concluded that “there is a significant lack of clarity regarding the duties of a trustee with respect to funds in a brokerage window”, and held that a final resolution of the question was unnecessary because Fidelity’s offer of hundreds of its own funds could not be treated as the “equivalent” of the brokerage window (in part because only Fidelity’s own funds were offered).

[4] But see “Is the SDBA the next litigation target?” “

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