Bitcoin in Your 401(k)?

A bipartisan-backed Congressional bill would give 401(k) investment managers greater leeway in selecting investment vehicles for employee retirement plans.

The Retirement Savings Modernization Act emerged from the Senate Banking Committee under the guidance of Pennsylvania’s Republican Senator Patrick J. Toomey. He and his co-crafters intend to build support for the bill as a critical piece of a year-end financial reform package.

The bill’s intent is to encourage retirement plan managers to diversify 401(k) holdings to include such “alternative” investments as real estate and private equity. Currently and historically, pension fund managers have had the freedom to diversity holdings beyond the stock market. But, Toomey said in a release, 401(k) managers have mostly stuck to the market, to avoid possible litigation citing risky investment decisions.

But as the traditional 401(k) holdings have stagnated, the “alts” have performed better. One Georgetown University study cited by the bill’s sponsors estimated a modest and conservative diversification into alts could boost 401(k) performance by 17% a year and cut losses in a recession.

Toomey’s bill, which amends the Employee Retirement Income Security Act of 1974 (ERISA),  “clarifies” for 401(k) managers which actions they can safely take to increase returns for future retirees without risking litigation.

Three of the bill’s central points are:

• A clarification that “plan fiduciaries may select investment options that include a range of asset classes, including private equity.”  The sponsors note that ERISA does not limit the asset classes for 401(k) plans. Rather, managers have simply avoided them. The bill  “makes clear that Congress intends to let investment professionals determine the appropriate range of asset classes.”
• Full protection for ERISA’s fiduciary standard, with no safe harbor for the fiduciary.  Although ERISA’s fiduciary standards have been validated by a U.S. Supreme Court ruling, the bill stipulates that “fiduciaries must still select investments through a prudent process.”
• Promotion of prudent diversification of retirement savings plans.  The bill recognizes that plan managers may not want to diversify. But to encourage them to do so, it provides “tools” to facilitate diversification.

Surveys of plan managers, particularly those overseeing 401(k) retirement plans, have shown them to be essentially conservative and reluctant to alter their holdings mix. While the bill tacitly includes digital investment vehicles, such as bitcoin, in the “alt” mix, sponsors don’t anticipate a rush to add such holdings to retirement fund portfolios.

From: BenefitsPRO