As of Tuesday, Letitia James, the attorney general of New York, said she has urged congressional leaders to support legislation that would prohibit investing retirement funds in digital assets, such as cryptocurrencies, digital coins, and digital tokens.
Sen. Ron Wyden (D-OR), Sen. Mike Crapo (R-ID), Rep. Richard Neal (D-MA), and Rep. Kevin Brady (R-TX), to whom James penned a letter on Tuesday:
“On behalf of the people of the state of New York, I urge Congress to pass legislation to designate digital assets — e.g., cryptocurrencies, digital coins, and digital tokens — as assets that cannot be purchased using funds in Individual Retirement Accounts (IRAs) and defined contribution plans, such as 401(k) and 457 plans.”
Cryptocurrencies are too dangerous to be permitted in retirement plans, according to James, who listed a few justifications. She added that they are incredibly volatile and “often an instrument for fraud and crime” in addition to having no inherent worth.
The FTX meltdown and the Terra crash, both of which were followed by sell-offs in the cryptocurrency market, were also mentioned by the attorney general. On Nov. 11, cryptocurrency exchange FTX declared bankruptcy due to inquiries into possible customer money handling violations.
Attorney General James referred to recent crypto market crashes and other market turmoil when he said:
“Investing Americans’ hard-earned retirement funds in crashing cryptocurrencies could wipe away a lifetime’s worth of hard work.”
“Over and over again, we have seen the dangers and pitfalls of cryptocurrencies and the wild swings in these funds. Hardworking Americans should not have to worry about their retirement savings being wiped out due to risky bets on unstable assets like cryptocurrencies,” the attorney general stressed.”
Additionally, James wants lawmakers to vote against two measures that would permit cryptocurrency investments in retirement plans. She penned:
“I urge Congress to reject the recently proposed Retirement Savings Modernization Act … and the Financial Freedom Act of 2022.”
The Retirement Savings Modernization Act would “expressly allow 401(k) plan fiduciaries to make digital assets an investment option,” James explained.
The Financial Freedom Act of 2022 would “prohibit the Secretary of Labor from constraining or prohibiting the range of investments offered through a self-directed brokerage window, i.e., the Secretary of Labor would not be able to prohibit investments in digital assets,” the NY attorney general emphasized.
The largest 401(k) administrator by assets, Fidelity Investments, started providing bitcoin investments in retirement plans this fall.
The American Labor Department is concerned about this. Cryptocurrency is “very risky,” according to Treasury Secretary Janet Yellen, who also noted that it is inappropriate for the majority of retirement savers. Three U.S. senators urged Fidelity CEO Abigail Johnson in a letter this week to stop providing bitcoin as a retirement account option.