Compliance July 28, 2022

Senators Press Fidelity on Bitcoin Exposure

In a letter, the Senators question why Fidelity would allow retirement plan participants to be exposed to the ‘untested, highly volatile asset.’

Reported by

Fidelity Investments announced in April that it would allow individuals to have a portion of their retirement savings allocated to bitcoin through their retirement plans, leading to praise from some corners and questions from others regarding whether the move is appropriate from a fiduciary standpoint.

Now, U.S. Senate Majority Whip Dick Durbin, D-Illinois, and Senators Elizabeth Warren, D-Massachusetts, and Tina Smith, D-Minnesota, have also taken notice, sending an open letter requesting answers from Fidelity on their decision to allow plan sponsors to offer participants exposure to bitcoin. In their letter, the Senators called the digital asset “unregulated and highly volatile.”

Get more!  Sign up for PLANSPONSOR newsletters.

“We write today to ask why Fidelity, a trusted name in the retirement industry, would allow plan sponsors the ability to offer plan participants exposure to Bitcoin,” the letter states. “While plan sponsors ultimately are responsible for choosing the investments available to participants, it seems ill­ advised for one of the leading names in the world of finance to endorse the use of such a volatile, illiquid and speculative asset in 401(k) plans—which are supposed to be retirement savings vehicles defined by consistent contributions and steady returns over time.”

The Senators questioned why Fidelity would allow those who can save to be exposed to the untested, volatile asset when saving for retirement is already a challenge for so many.

In a statement, Fidelity said its clients continue to have strong interest in 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,” the statement says. “We are continuing our respectful dialogue with policymakers to responsibly provide access with all appropriate consumer protections and educational guidance for plan sponsors as they consider offering this innovative service. Consistent with our ongoing dialogue with regulators and policymakers, we are working with them directly.”

For their part, the Senators argued that Fidelity and its peer organizations should focus on solving more fundamental problems.

“Those fortunate enough to have access to a retirement plan may be unable to find space within their household budget to contribute to an employer-sponsored plan, and they may feel that their wages would be better directed to household essentials such as housing costs, childcare, food or transportation,” the letter states. “Some workers, especially younger workers just entering the workforce, might not see the value of participating in an employer-sponsored plan, or may consider retirement a problem worth addressing later in their working life. The above issues are legitimate, complex problems within our retirement system.”

The letter raises various concerns about potential risks and financial dangers posed by digital assets such as bitcoin, noting that the asset topped out at $68,000 in November 2021 before dropping to around $20,000—more than two-thirds off its peak.

“While we appreciate Fidelity’s efforts to help working Americans realize a more secure retirement, this decision is immensely troubling,” the letter continues. “Perhaps most troubling is that in pointing to the risks of investing in Bitcoin on its website and planning to cap plan participants’ Bitcoin exposure to 20%, Fidelity is acknowledging it is well aware of the dangers associated with investing in Bitcoin and digital assets—yet is deciding to move ahead anyway. Retirement accounts must be held to a higher standard, one that Bitcoin and other unregulated digital assets fail to meet. This asset class is unwieldy, immensely complex, unregulated and highly volatile. Working families’ retirement accounts are no place to experiment with unregulated asset classes that have yet to demonstrate their value over time.”

The Senators acknowledged that the underlying technology of blockchain shows promise and has the potential to be used for “innovative and exciting applications,” but they warned that consumers must be wary of the risks associated with bitcoin and other digital assets.

Separately, the U.S. Department of Labor’s Employee Benefits Security Administration has previously published compliance assistance for 401(k) plan fiduciaries considering plan investments in cryptocurrencies, cautioning plan fiduciaries to exercise “extreme care” before they consider the digital assets as options for an investment menu for plan participants.

As EBSA has noted, the Employee Retirement Income Security Act of 1974 requires plan fiduciaries to act solely in the financial interests of plan participants and adhere to the standards of professional care in considering investment options for participants in 401(k) plans.

“At this stage of cryptocurrency’s development, fiduciaries must exercise extreme care before including direct investment options in cryptocurrency,” said Employee Benefits Security Administration Acting Assistant Secretary Ali Khawar.

In June, the U.S. House Committee on Education and Labor heard testimony from Labor Secretary Marty Walsh, where he discussed the DOL’s guidance on crypto in retirement.

“We made a recommendation because we were concerned about employees having 20% of their retirement savings put in cryptocurrency,” Walsh said. “Our role is to make sure that we’re protecting the rights of American workers and the investments going in.”

Benefits July 27, 2022

Plan Sponsors Are Exploring Renewed Pensions

Employers are exploring workplace benefit enhancements to retirement plans to address feelings of financial insecurity and attract and retain employees.   

Reported by

In an employer’s battle to attract and retain the best employees, enhanced workplace benefits and robust retirement plans are ammunition.

According to Jonathan Price, senior vice president and national retirement practice leader at Segal, employers that recognize the myriad financial challenges workers face—from everyday financial wellness habits to short-term budgeting and long-term retirement planning—are enhancing retirement and workplace benefits to recruit and retain workers, and help current employees feel more financially secure.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

“What we’ve seen more and more conversations about in 2022 than I ever would have expected in 2012 is around [defined benefit] pension plans,” he says. “While it’s too early to say whether this will actually lead to employers changing plan designs or reopening plans that were previously closed or frozen, employers are speaking about or talking about them in 2022 in a way that we may not have expected three years ago.”

In a June Gallup poll, 40% of Americans surveyed said economic problems are the most severe issues facing the U.S., with 18% citing the high cost of living and inflation and 13% citing the economy in general.

Employers have enhanced existing benefits and incorporated new benefits to tackle employees’ feeling of financial insecurity. And, in a return to the past, they have examined the prospect of renewing pensions to further meet the challenge, Price explains.

“We’ve observed, over the last two years, a deep evolution of the people needs that employers have struggled with,” he says. “Employers have continued to evolve and enhance their benefits programs to meet the challenge.”

Research from T. Rowe Price shows that feeling financially insecure extends to retirement anxiety and general financial stress for employees. The firm’s Retirement Savings and Spending Study finds that retirement plan participants who are experiencing stress from debt are saving less for retirement.

“Workers who start saving for retirement early in their working years have higher Retirement Behavior Index scores than those who start saving later in their working years,” a T. Rowe Price release says. The proprietary Retirement Behavior Index aims to measure not only the impact of participants’ everyday financial behaviors, but also how people balance shorter-term needs with longer-term financial goals, according to the firm.

In their progress toward renewed pensions, many plan sponsors remain at the conversation stage, Segal’s Price says. 

“Where the conversation about pension plans have been most energized is where employers have created very defined risk protocols for themselves,” he explains. “Whether it’s a liability-driven investment strategy for the assets, whether it’s plan design that matches the assets to the liabilities or the liabilities to the assets, like a variable annuity plan design, these different risk approaches that employers have taken over the last decade-plus have really been tested, and in many respects employers can now step back and say, ‘We’re six months into a very volatile capital market and we’re comfortable with where we are. Our economic funded status is no worse, maybe even better than it was six months ago, and that’s a sign of the success of our program.’”

Offering a defined benefit pension could be a game changer for attracting talent, Price adds.

There is “a need for resources and helping employees with the myriad decisions that they’re going through,” he says. “Pension plans offer a very powerful way to take some of that stress away from the employee … to be managed professionally by the employer, by its advisers, so that the employee has one less stress to worry about. In fact, they can anchor their financial health around that one piece.”

Plan sponsors are also focused on broadly boosting employee benefits, enhancing retirement benefits through robust 401(k) matches and moving toward broad financial wellness to differentiate themselves in the pool for talent, Price explains.

“Combine[d] with legislation last year that helped protect the contribution burdens in the immediacy of market volatility, that has really given financial officers confidence that they can manage them, and HR officers and heads of HR are saying, ‘We really could benefit from [this]. It has all of the right attributes that we’re looking for to help our employees.’”

«