The rapid collapse of cryptocurrency exchange FTX has caused some in the retirement industry to question a recent push to include cryptocurrency in 401(k) and other retirement plans. defined contribution pension.
The rapid fall of FTX, which caused a related drop in major cryptocurrencies such as bitcoinscame to a head on Friday with Bahamas-based FTX filing for Chapter 11 Bankruptcy. Whatever the outcome, industry experts say financial and pension advisers may be put off recommending the asset, which is currently being used by some plan sponsors via offerings from the market leader. sector. Loyalty investments and small business plan provider For all of us.
“About a year ago, we had customer questions about crypto in 401(k) plans and suggested a ‘wait and see’ approach,” says Michael Gheen, vice president and senior director of clients for pension plan services at Oswald Financial. “The bankruptcy of FTX has really strengthened our approach. There is not enough regulation and too much risk today to add crypto as an investment option in the plan.
The events of the past week have heightened concerns expressed by some in the pension industry, including regulatorsthat the inclusion of cryptocurrency must be seriously considered to meet the fiduciary standards enforced by the US Department of Labor through the Employees Retirement Income Security Act.
“If you’re sitting in the DOL’s place, that’s a signal that it’s not a regulated currency, there are issues to be resolved, and trustees need to be careful,” says Wendy Von Wald, head of fiduciary products at Travelers. Insurance. “Overall, I think this only reinforces the need for trustees to be very diligent in what they offer.”
A investigation by fintech firm Capitalize found that 60% of investors would like cryptocurrency in retirement plans, and the offer is particularly attractive to young workers, according to a separate investigation by Charles Schwab. Gheen d’Oswald says clients of diet sponsors asked them about cryptocurrency before the decline in values began earlier this year, but at the time warned against it.
“We reminded committee members of their fiduciary responsibility to their participants,” says Gheen. “Our big concern is that many plan participants are not sophisticated investors, however, they hear news about ‘crypto billionaires’ and can get caught up in the hype. With the concern of participants looking for returns, Looking back, we’re relieved that none of our clients added a crypto option to their plan.
Debbie Matustik, managing director of pension advisory Pensionmark Financial Group in Austin, said the collapse of FTX has reinforced her view that cryptocurrency is not a good option for plan participants.
“To me, the potential risk inherent in cryptocurrencies makes them inappropriate for most participant-directed pension plans,” Matustik said in an email response. “Most plan participants lack sufficient investment sophistication to truly understand the potential risks of investing in crypto. The crash and bankruptcy of FTX testifies to this.
The news comes as the nation’s largest retirement plan accountant, Fidelity, and small business plan provider ForUsAll have plan sponsor clients offering participants access to cryptocurrency assets in their 401(k) accounts. ).
A Fidelity spokesperson said in an email that the Boston-based company has signed up plan sponsors since the fall offering access to Fidelity Digital Asset Account as part of their baseline 401(k). The company did not immediately respond to comments about FTX’s collapse.
For all of us announcement last week, 50 plan sponsors went live with its cryptocurrency offering for 401(k) participants through the self-directed brokerage window. He also noted a number of safety precautions ForUsAll has in place before retired investors can direct deferrals to cryptocurrency, including a waiver, a blockchain technology quiz, and having to go through the self-managed window itself. The San Francisco-based company did not immediately respond to comments about FTX’s collapse.
ForUsAll is also embroiled in a lawsuit against the DOL over a warning the regulator gave trustees about including cryptocurrency in pension plans, whether through the menu or a self-directed brokerage window. CEO David Ramirez recently says PLANADVISER that the company has offered to drop the lawsuit as long as the agency confirms that its warning about cryptocurrency in pension plans “does not have the force of law.”
No ordinary vanilla
The story of FTX’s downfall reinforces the need for trustees to be careful with the investments they make available and monitor them consistently, says Von Wald. She notes that pension trustees are now commonly sued for investment decisions which are much less volatile and novel than cryptocurrencies.
“If you are going to be challenged for the more vanilla investments like a stable value fund or a money market fund, then selecting something like a virtual currency or bitcoin should definitely take more time and consideration,” she says.
Matustik from Pensionmark Austin says they don’t have any customers who offer crypto in their plans. But rather than avoid discussion, they proactively introduce the topic during client plan review meetings, noting the benefits of including it—mainly to satisfy the “small percentage” of employees who request it— against the disadvantages, including the risk of significant losses by individual participants.
Matustik noted that she might be wrong, but as a pension advisor, she doesn’t see widespread adoption of cryptocurrency in 401(k) plans any time soon.
“FTX’s collapse just illustrates this point,” she says. “It may in fact provide an excellent (albeit unfortunate) future illustration of what risk really means when investing in the most speculative and volatile instruments.”