Could Cryptocurrency Be Coming to Retirement Plans?

Summary

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WSJ Your Money Briefing: "Could Cryptocurrency Be Coming to Retirement Plans?"

Podcast: WSJ Your Money Briefing
Host: J.R. Whalen, The Wall Street Journal
Guest: Anne Tergesen, WSJ Retirement Reporter
Date: June 10, 2021

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Episode Overview

This episode explores the emerging possibility of cryptocurrencies as investment options within retirement plans, specifically 401(k)s and IRAs. The discussion centers on the move by 401(k) provider "ForUsAll" to offer direct crypto investments and what this could mean for retirement savers. Key topics include the mechanics of such offerings, potential advantages and pitfalls, how common crypto is in retirement accounts, and whether broader adoption is likely.

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Key Discussion Points and Insights

1. Current State: Cryptocurrencies in Retirement Plans

• 401(k) and IRA offerings lack direct crypto options:
  • “The brokerage platforms that most people use for their IRAs, companies like Fidelity and Schwab, they don't allow people to invest directly in cryptocurrencies.”
    — Anne Tergusen [00:55, echoed at 06:39]

2. ForUsAll’s New Crypto Offering

• ForUsAll as a smaller 401(k) provider:
  • Focuses on smaller/startup companies; administers $1.7B in assets.
  • “They’re a small player. And I think they’re trying to differentiate themselves with this offering…”
    — Anne Tergesen [02:10]
• How the program works:
  • Employer decides whether to add crypto as an option.
  • Employees can allocate up to 5% of their retirement assets to cryptocurrencies.
    • “If the employer makes the decision…the employee will have the option to invest up to 5% of assets in cryptocurrency.”
      — Anne Tergesen [02:10]
  • If crypto’s share grows past 5% of the portfolio, the provider will notify employees to rebalance, but the decision to take action is theirs.
    — Anne Tergesen [03:13]

3. Mechanics: What Kind of Crypto Exposure?

• Direct holdings, not funds:
  • “It’s investing directly in cryptocurrency.”
    — Anne Tergesen [03:13]

4. Motivations: Why Offer Crypto in Retirement Accounts?

• Meeting employee demand, particularly among younger workers:
  • “He feels that this will provide his employees with something that will kind of give them more reason to focus on the 401k plan and might give them more reason to actually save more in the plan…”
    — Anne Tergesen relaying a manager’s view [04:09]

5. Potential Benefits for Account Holders

• Tax advantages:
  • Crypto trades within 401(k) or IRA are tax-deferred; no taxable events until withdrawal.
    • “You can trade, you can buy and sell without tax consequences…because these are tax-deferred accounts.”
      — Anne Tergesen [04:51]

6. Risks and Criticisms

• Extreme volatility and lack of track record:
  • “Stocks are volatile investments too, but cryptocurrency is much more volatile…doesn't have sort of the proven track record as an asset class that…stocks or bonds do.”
    — Anne Tergesen [05:27]
• Concerns about excessive risk for savers:
  • “There are a lot of people who are concerned…investors might invest too much in an extremely volatile asset class, which would jeopardize their savings…”
    — Anne Tergesen [05:27]
  • “If you’re close to retirement…you either shouldn’t invest at all or just a very, very small piece.”
    — Anne Tergesen [05:27]

7. The Rarity of Crypto in Retirement Plans

• Self-directed IRAs as a rare exception:
  • Only specialized accounts (“self-directed IRAs”) presently allow direct crypto purchases.
    — Anne Tergesen [06:39]

8. What’s Next? Will Crypto Become Common in 401(k)s and IRAs?

• Industry conservatism:
  • “The 401(k) industry, especially large companies…are kind of slow to take on new things.”
    — Anne Tergesen [07:41]
• Employers' prudent approach to retirement investing:
  • “Employers...want to make sure that people invest in very prudent ways that ensure that they're going to have their money when they need it.”
    — Anne Tergesen [07:41]
• Alternative investments are rarely included in plans:
  • Even things like private equity and hedge funds are scarce.
    — Anne Tergesen [07:41]

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Notable Quotes & Memorable Moments

• “It's not common at all...companies like Fidelity and Schwab, they don't allow people to invest directly in cryptocurrencies.”
  — Anne Tergesen [00:55, 06:39]

• “If the employer makes the decision to do that, the employee will have the option to invest up to 5% of assets in cryptocurrency.”
  — Anne Tergesen [02:10]

• “It’s investing directly in cryptocurrency…the goal is that it would ideally cap at 5% participants’ exposure”
  — Anne Tergesen [03:13]

• “You can trade, you can buy and sell without tax consequences...because these are tax-deferred accounts.”
  — Anne Tergesen [04:51]

• “Cryptocurrency…doesn't have sort of the proven track record as an asset class that...stocks or bonds do.”
  — Anne Tergesen [05:27]

• “Employers...want to make sure that people invest in very prudent ways that ensure that they're going to have their money when they need it.”
  — Anne Tergesen [07:41]

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Timestamps for Important Segments

• Intro & setup: [00:35–01:07]
• ForUsAll’s move & summary of offering: [01:42–03:13]
• Benefits and risks discussion: [04:09–05:27]
• Industry context—how rare is this?: [06:34–07:35]
• Outlook for broader adoption: [07:41–08:37]

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Overall Tone

The discussion is factual, cautious, and balanced—reflecting both the innovative demand for crypto in retirement and the conservative, slow-moving nature of most retirement plan providers. The guest, Anne Tergesen, emphasizes the risks and regulatory conservatism around retirement savings decisions.

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Summary prepared for listeners seeking a concise and informative snapshot of this episode’s insights on the intersection of cryptocurrency and retirement planning.

Transcript

[A]

Still running global payroll like a relay race Deal replaces fragmented payroll vendors with one global system. No third parties hire, manage and pay teams in 150 plus countries with in house local experts and white glove delivery and deal plugs into what you already use. Workday SAP Netsuite operate like a local everywhere. Visit d e l.com WSJ that's d e e l.com WSJ.

[B]

Here's your money briefing for Thursday, June 10th. I'm J.R. whalen for the Wall Street Journal. When saving for retirement, most people choose a balance of stocks, ETFs and funds offered by their 401k or IRA administrator. But what typically is not on the list of investment options is something as risky and unpredictable as cryptocurrency.

[C]

It's not common at all. I mean, the brokerage platforms that most people use for their IRAs, companies like Fidelity and Schwab, they don't allow people to invest directly in cryptocurrencies.

[B]

But could that be about to change? Coming up, our retirement reporter Ann Tergeson will tell us about one 401 provider that's offering access to crypto and the potential benefits and risks of adding it to your retirement fund. That's after the break.

[A]

This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. Washington Wise from Charles Schwab is an original podcast that unpacks the stories making news in Washington. [e-mail] Washingtonwise.

[B]

The 401 provider known as For Us all handles just a small fraction of the $22 trillion retirement account market, but it's taking a big leap into the world of cryptocurrency. It's teaming up with crypto exchange Coinbase to allow customers to add crypto to their retirement accounts. Our retirement reporter Ann Turguson is here with the details. Anne, nice to have you with us.

[C]

Thanks for having me.

[B]

So, Anne, this decision by For Us all is pretty unusual. What can you tell us about how it'll work?

[C]

So for us all is a 401k provider. It tends to specialize in smaller companies, often like, you know, startup companies. It's located in California. They currently have about $1.7 billion in assets that they are administering within 401k plans. So it's not a big player. It's not nearly on the scale of, say, a Fidelity or a Vanguard where they have billions of dollars in 401 plans. So they're a small player. And I think they're trying to differentiate themselves with this offering and the way it's going to work, the way that they have offered it, is that if your employer uses for us all as a 401k provide, employer can decide whether to offer the cryptocurrency offering. And so if the employer makes the decision to do that, the employee will have the option to invest up to 5% of assets in cryptocurrency.

[B]

And just to clarify, will this be an investment in a fund that holds cryptocurrency or investing directly in the currency itself?

[C]

It's investing directly in cryptocurrency. And so the idea, the goal is that it would ideally cap at 5% participants exposure to cryptocurrency. Now, Forestall says that once the value of the cryptocurrency offerings within an investor's portfolio exceeds 5% of the balance, the company will notify the employee to ideally to sell some cryptocurrency and what they call rebalance by limiting capping their exposure at 5%. In reality, it would be up to the employee to make the decision about whether to do that or whether to allow cryptocurrency to continue to accrue in their account at a higher percentage of the balance.

[B]

Got it. Now, you've spoken with managers of small businesses that offer retirement accounts from for us all. What do they like about the idea of offering cryptocurrency as an investment option for employees?

[C]

So I spoke to a manager of a small company that provides livestream technology. And you know, he likes the idea of providing this investment because he his workforce covers all age ranges or most age ranges, but there's a kind of a concentration of younger workers. And he knows that there's been some level of excitement about cryptocurrency investing. And so he feels that this will provide his employees with something that will kind of give them more reason to focus on the 401k plan and might give them more reason to actually save more in the plan, which he thinks would be a positive.

[B]

And for individual retirement account holders, what are the potential benefits of holding cryptocurrency in their 401k or their IRA?

[C]

You know, an advantage of holding cryptocurrency in your 401k or IRA as opposed to investing in it in a taxable account account, is that there are tax advantages, which is that you can trade, you can buy and sell without tax consequences in the 401k or IRA, because these are tax deferred accounts. You do have to pay tax eventually when you withdraw your money from the account. But It's a different arrangement and it allows people to trade without paying taxes along the way.

[B]

But as we've seen almost on a daily basis, the value of cryptocurrency can swing up and down pretty dramatically. That doesn't seem like it would be a part of a recipe for steadily building up retirement savings.

[C]

Well, just to be clear, I mean, stocks are volatile investments too, but cryptocurrency is much more volatile than stocks. So there are a lot of people who believe that cryptocurrency, first of all doesn't have sort of the proven track record as an asset class that say, stocks or bonds do. There are a lot of people who believe it's too volatile. There are a lot of people who are concerned that 401k investors might invest too much in an extremely volatile asset class, which would jeopardize their savings or could jeopardize their savings. So, you know, there are a lot of people who believe this isn't necessarily an appropriate investment to put into your portfolio. That said, the people who are proponents of this argue in favor of including a small investment. Like I said with For Us all, they're arguing for capping it at 5% of the portfolio's value. And that would be sort of an upper limit. You know, for some people, they argue it wouldn't be appropriate at all. You know, for, for example, if you're close to retirement and you need to start drawing on your assets, I think the argument would be that you either shouldn't invest at all or just a very, very small piece.

[B]

And right now, this ability to invest in cryptocurrency as part of retirement accounts is pretty uncommon.

[C]

So currently within the scope of IRAs, it's not common at all. I mean, the brokerage platforms that most people use for their IRAs, companies like Fidelity and Schwab, they don't allow people to invest directly in cryptocurrencies. Now, you know, that may change in the. But right now you can't invest directly in cryptocurrencies. So currently there's no way to really buy the underlying cryptocurrencies themselves through most IRAs. There are types of IRAs that you can invest in. They're called self directed IRAs, and those tend to be offered by specialized companies. And self directed IRAs allow people to invest in sort of a range of assets that you can't invest in in your typical ira. So in order to actually invest in the underlying cryptocurrenc and the actual cryptocurrencies, you'd probably have to seek out some kind of specialized investment vehicle like that for an ira.

[B]

What about looking ahead to the future? From your conversations with people in the industry, does it seem like this sort of thing might become more common?

[C]

I think the question of whether cryptocurrency is going to show up in more 401k plans in the future is really difficult to answer. So you know, I think in general the 401k industry, especially large companies that offer 401k plans are kind of slow to take on new things. They don't. You know, right now most 401k plans are focused almost entirely on stocks and bonds. It's hard to find alternative investments like private equity in these plans or hedge funds or whatever. So the pace of change is very slow. And you know, employers are really concerned. They want to make sure that people invest in very prudent ways that ensure that they're going to have their money when they need it. And, and so I think they are very conservative and slow paced about adopting alternatives to the traditional stock and bond portfolio.

[B]

All right, that's Wall Street Journal retirement reporter Ann Tergeson. Anne, nice to have you on the show.

[C]

Thank you.

[B]

And that's your Money briefing. I'm J.R. whalen for the Wall Street

[A]

Journal still running global payroll like a relay race deal replaces fragmented payroll vendors with one global system. No third parties hire, manage and pay teams in 150 plus countries with in house local experts and white glove delivery and deal plugs into what you already workday SAP netsuite operate like a local everywhere visit d e l.com WSJ that's d e e l.com WSJ.