-The DOL is troubled by the addition of crypto to 401(k)s
-The Alt-401(k) could encourage younger employee plan participation
-SBDAs
-Biden cracks down on crypto
It should come as no surprise to anyone familiar with crypto that the government has, at best, been skeptical about digital currency and its benefit to ordinary Americans.
More recently, the DOL has expressed concern that cryptocurrencies are to be added to so-called alt-401(k)s.
In a July forum, the DOL’S Acting Assistant Secretary Ali Khawar stated:
“When you look at cryptocurrency and the different forms of currency—there is a lot of volatility, there’s a lot of noise, there’s very little transparency, and I’m sure some of you have seen reports about cryptocurrency becoming an option in investment lineups, but it’s something that we find very troubling,”
More specifically, Khawar said that what troubled the DOL was that these investments would be ‘held in tax-advantaged retirement accounts’.
However he did go on to say that these discussions are in very early stages, and there was no major announcement to be made on the issue just yet. Khawar does expect the DOL to lay out some guidance soon.
This unconventional iteration of the 401(k) is intended to appeal to a younger audience. One that might not otherwise engage with their plan. The kind of people that gave hedge fund managers heart palpitations when they bought Gamestop and AMC stocks.
There will be some guardrails for workers who want to participate in these alternative investments. Crypto enthusiasts, amongst the workforce, can only transfer a maximum of 5% of their balance into what’s known as SDBA or Self Directed brokerage account; with an alert should they go past this limit.
SBDAs have existed long before crypto, and according to a survey by the Plan Sponsor Council of America around 23% of plans include SBDAs and 40%, with over 5000 participants, also offer them as an investment option. That being said, only 1.5% of plan assets are invested in SBDAs.
So, at this point, it is unclear just how popular the crypto option will become. But as long as ERISA rules are followed, with all the appropriate risks and disclosures communicated properly, we could see more plan sponsors getting on board.
The Biden administration, however, have not shown themselves to be particularly crypto friendly. The new US Infrastructure Bill broadens who can be considered a broker, it states:
“any person who (for consideration) is responsible for and regularly provides any service effectuating transfers of digital assets.”
In short this could mean anyone directly working with cryptocurrencies in any capacity, would be considered a broker; which has tax and KYC implications.
A brief battle ensued between the so-called crypto caucus-who filed a broker amendment to exclude validators, hardware, software makers as well as protocol developers-and another group of senators who drafted the initial tax provision, that broadens the definition of a broker and more importantly who gets taxed.
This all culminated in Biden siding with Senators Sinema, Portman, and Warner who opposed the amendment. Furthermore it looks like crypto has some powerful enemies. There are reports that Treasury Secretary Janet Yellen, herself, lobbied against the amendment.
This could be a signal for a wider crackdown on crypto, and if so that could spell disaster for the Alt-401k, but for now at least, the option is there.
If you are curious about a little Bitcoin in your 401(k) or just crypto in general, why not check out Rixtrema’s Coinoptimiser – where you can assess risk when investing in crypto.
