Bitcoin is coming to 401(k) plans. But not your target-date fund

It's possible that your 401(k) plan will include cryptocurrencies. The same isn't true of target-date funds.

Target-date funds are popular in workplace retirement plans. They hold a mix of stocks, bonds and other securities, growing more conservative as investors approach retirement.

Investment and retirement experts say that cryptocurrencies don't factor among those holdings, and likely won't for at least three years to five years.

CNBC has learned that the 10 largest target-date managers don't allocate money tocryptocurrencies in their TDFs.

Fidelity Investments is one of them. The firm announced in April that it would be the first 401(k) administrator to allow employers to offer a bitcoin investment, which would sit alongside the one or two dozen others employers generally make available to workers.

The firm, the second-largest target-date fund manager, doesn't have plans to add a crypto allocation.

At the end of the year, the firm had $460 billion in target-date assets. Putzeys didn't comment on this story.

David Ireland, a senior managing director at State Street Global Advisors, which manages about $150 billion in target-date assets, said that it was something to watch but a ways out.

Ireland, who heads the firm's global defined contribution team, said it was not a hard no. A 401(k) is a type of defined-contribution plan.

The majority of 401(k) contributions in 2020 were captured by target-date funds. The largest share of 401(k) savings is held by the funds, according to the Plan Sponsor Council of America.

Money managers and investment experts say risk is the biggest hurdle for adding tHe digital currency.

Fidelity seems to have little risk in making a 401(k) investment. Employers are the ones who decide whether to grant access to workers.

Given the size of digital asset markets, their impact on capital markets cannot be ignored.

Even if just a small share, like 2% to 5% of total assets, could cause employers to quickly reconsider the fund and swap out for another, the head of research says.

Employers have been sued by current and former employees over their 401(k) investments.

Some claim that the employers chose funds that were too costly or that were bad for them.

How fast does inflation cut buying power? A majority of Americans want to live to 100.

As a result, a money manager could see its TDF assets.

I see zero upside if I am a TDF manager.

Experts said that a money manager's choice could open it up to investor lawsuits.

Chris Brown, the founder of Sway Research, said that if the market goes the wrong way, you have to face the firing squad.

The Department of Labor recently expressed reservations about investing in 401(k) plans with the use ofcryptocurrencies.

The price of the virtual currency fell below $30,000 for the second time this week. Prices are less than half their peak value, which was over $67,000 in November.

It’s certainly not a hard no. But there’s a lot more, I think, to understand here.

The mandates we manage for clients today are not well suited for investing directly in digital assets, and we are aware of the high level of speculation and lack of regulatory clarity in this space. Our target date strategies don't invest incryptocurrencies and have no near-term plans to do so.

The impact of digital asset markets on capital markets cannot be ignored.

T. Rowe is the third target-date manager. The firm oversaw $400 billion in TDFs at the end of the year.

A spokeswoman for Capital Group, which manages the American Funds brand, said that they don't currently have plans to introduce an allocation tocryptocurrencies in the American Funds Target Date Retirement Series.

Ireland of State Street said that the asset class has created some long-term value, even though it appears to be road blocks. From the beginning of 2020 to the recent plunge, the price of the virtual currency is up fourfold.

Ireland explained that using TDFs to provide a more controlled exposure to certain asset classes may be beneficial for investors.

It would be similar to something like commodities, an asset class to which State Street allocates in its TDFs but which likely doesn't make sense as a 401(k) investment.

Ireland said that the case still needs to be made.

He said that we are not going to be the outlier.