The bill serves as the House companion to the Senate’s Financial Freedom Act of 2022, which was introduced earlier this month. Rep. Donalds’ bill would prohibit President Biden’s Department of Labor from restricting the type of investments that self-directed 401(k) account investors can choose to invest in through a brokerage window.
Fidelity at risk?
Last month, Fidelity announced it would allow participants in its 401(k) retirement plan to allocate a portion of their investments to bitcoin, not long after the Department of Labor admonished 401(k) providers. Currently, it provides 401(k) retirement plans to over 23,000 companies.
“In this early stage in the history of cryptocurrencies, the Department has serious concerns about the prudence of a fiduciary’s decision to expose a 401(k) plan’s participants to direct investments in cryptocurrencies, or other products whose value is tied to cryptocurrencies.”
In a recent interview with the Wall Street Journal, the Department expressed its concerns for what Fidelity Investments has done.
“We have grave concerns with what Fidelity has done,” acting assistant secretary of the Employee Benefits Security Administration Ali Khawar said. The administration regulates company-sponsored retirement plans within the Labor Department.
“In a far-reaching and sweeping endeavor to centralize power in Washington, the Biden administration is now attempting to dictate how American people invest their hard-earned money,” said Rep. Donalds.
“This administration, as well as any other government entity, lacks the authority to direct the financial future of America’s investors,” he noted.
Bill gets Republican support
Donalds mentioned in a tweet that Senator Tommy Tuberville of Alabama would be driving this bill in the Senate, with support from Congressman for Minnesota’s sixth District, Tom Emmer.
“Proud to support @RepDonaldsPress and @SenTuberville Financial Freedom Act of 2022,” Emmer tweeted.
Congressman Warren Davidson from Ohio’s eighth district, Rep. Young Kim, who serves as the U.S. representative for California’s 39th Congressional District, and U.S. Representative for Arizona’s Sixth Congressional District, also voiced their support of the bill.
“Folks work for decades, live within their means, and invest wisely so they can retire comfortably,” said Senator Tuberville.
“Now, the Biden administration has taken it upon itself to dictate what assets are viewed worthy of retirement investment, taking the decision away from individual investors by issuing regulatory guidance targeting cryptocurrency. This is government overreach at its finest. The government has no business standing in the way of retirement savers who want to make their own investment choices. When you’ve earned your paycheck, how you invest your money should be your decision. Our legislation makes sure that is the case.”
Weaknesses in Fidelity’s offerings
Some experts argue that Fidelity has missed two critical elements of investment – a lack of diversity and allocation size.
Offering only one or two cryptocurrencies is not ideal, argues Matt Hougan, chief investment officer at Bitwise Asset Management.
He argues that the “best approach for most investors looking to make a long-term allocation to crypto is to own a diversified, regularly rebalanced index that will adapt to the evolving market.”
Hougan believes that despite short-term reluctance due to regulator pushback, employers will eventually clamor to get crypto added to their 401(k) plans because employees will welcome the move.
David Ramirez, chief investment officer at 401(k) provider ForUsAll, said that the company provides exposure to a diverse selection of institutionally adopted cryptocurrencies.
Crypto experts suggest that a 20% bitcoin allocation is too high.
“In the case of a 401(k) plan where the employer has fiduciary responsibilities to the plan participants, 20% is quite high for most investors,” argues Adam Bergman of the IRA Financial Group. The company allows clients to invest in a broad array of cryptocurrencies.
Bergman believes that the allocation to crypto should be 1 percent to 5 percent of the portfolio.
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