A 401(k) consultant wants cryptocurrency to have a place in defined-contribution plans.
On Monday, ForUsAll, an investment adviser, consultant and plan provider, announced a new retirement plan option, Alt 401(k), that lets participants allocate up to 5% of their assets and contributions to an account with access to a variety of digital currencies. The first alternative investment available in the service is provided by Coinbase Institutional, ForUsAll stated in its announcement.
The service is akin to a brokerage window and gives 401(k) participants access to 50 different cryptocurrencies that they can buy, trade or sell, according to the firm. As part of the package, Alt 401(k) also provides employees with ongoing education and portfolio monitoring.
The new option is available to all of the company’s 401(k) clients, including those within its multiple employer plan. The alternatives service is available within ForUsAll’s record-keeping business, although it plans to make it available through other 401(k) record keepers later this year.
“It was critical that we provide access along with education, guidance and guardrails so that employees within a 401(k) can access this asset class in a prudent fashion,” said David Ramirez, the company’s cofounder and chief investment officer.
If the proportion of a worker’s 401(k) assets in the alternative account exceeds 5% of their total 401(k) balance, they will get an alert from ForUsAll asking them to consider rebalancing, according to the firm. However, participants are not required to rebalance, so it will be possible that their overall allocation to digital currencies could exceed 5%, assuming their investments in that asset class appreciate faster than the rest of their 401(k) portfolio.
Alternatives, including crypto, provide diversification and could potentially get more workers engaged with their 401(k)s, given the interest that younger people have shown in Bitcoin and other digital assets, according to ForUsAll.
“The world of financial services has changed quite significantly over the last 10 years. The largest institutions are increasingly taking advantage of alternative asset classes, including cryptocurrency,” Ramirez said. The lack of access among 401(k) participants puts them at a disadvantage, he said.
Despite the rising popularity of digital currency, it has not caught on in the 401(k) market. Part of that is a lack of established investment options, including mutual funds and ETFs, that provide exposure to it. But more importantly, the asset class — all but synonymous with volatility — presents more potential risk than retirement plan advisers feel confident about letting their clients assume.
Even beyond RPAs, most advisers appear to be skeptical of Bitcoin and other digital currency.
“I am in wait-and-see mode. It is not something that I would be comfortable with as a fiduciary on a plan,” said Jamie Greenleaf, lead adviser at OneDigital’s Cafaro Greenleaf, in an email.
“Most participants are savers not investors but have been made to become investors through the [qualified default investment options]. We also have an obligation to protect from large losses … It is always about weighing the risks, and to me currently it is not worth the risk.”
Assets in cryptocurrency have surpassed $1 trillion, but it is still a speculative category, said Chris Karam, chief investment officer at Finspire, in an email.
That is “a reality that fiduciaries must grapple with when making this decision,” Karam said.
“An ERISA attorney may offer an opinion that cryptocurrencies meet the Section 404(c) criteria, yet the fiduciaries permitting the allocation may find the volatility to be too high and unpredictable,” he said. “Recent events – such as India curtailing the use of cryptocurrency as a means of commercial exchange, the price of Bitcoin dropping nearly 50% from its April 14, 2021 high, and the ability of the FBI to recapture payments in the Colonial Pipeline ransomware case – should all be factors fiduciaries consider before permitting the allocation. Certain cryptocurrencies may be around for the long run, but the asset class may be too fresh for ERISA consideration.”
For the new plan option, Coinbase provides institutional custody and foreign exchange for the service, and assets are stored offline or through other secure methods, according to ForUsAll.
Participants who use the service access the accounts through the same systems as their 401(k)s, rather than having to use digital wallets or keys, the company noted.
ForUsAll, which manages about $1.7 billion in retirement assets, acts as either a 3(38) or 3(21) investment fiduciary for clients, as well as a 3(16) plan administrator. For the new alternatives and cryptocurrency option, the company acts as a 3(38) on the investment side, meaning that it has full control of investment selection and monitoring.
The company’s plans use a core lineup of low-fee, target-date products and index funds, he noted.
Participants who opt to use the service pay an account fee of 8.3 basis points per month and 50 bps per transaction, he said. There is no cost to employers for adding the option, according to the firm.
“For the plan sponsor, this is equivalent to them adding a self-directed brokerage window to their 401(k) plan,” Ramirez said.
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