NY AG calls on Congress to outlaw cryptocurrency in retirement accounts

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:

I urge Congress to enact legislation designating digital assets, such as cryptocurrencies, digital coins, and digital tokens, as assets that cannot be bought with money from Individual Retirement Accounts (IRAs) and defined contribution plans, like 401(k) and 457 plans, on behalf of the people of the state of New York.

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 “frequently an instrument for fraud and criminality” 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:

American retirees risk losing a lifetime’s worth of savings by investing in volatile cryptocurrencies.

“We have often witnessed the risks and disadvantages of cryptocurrencies as well as the huge fluctuations in these funds. The attorney general emphasized that hardworking Americans shouldn’t have to be concerned about their retirement funds being lost as a result of reckless bets on volatile assets like cryptocurrency.

Additionally, James wants lawmakers to vote against two measures that would permit cryptocurrency investments in retirement plans. She penned:

I implore Congress to vote against the Financial Freedom Act of 2022 and the recently proposed Retirement Savings Modernization Act.

According to James, the Retirement Savings Modernization Act would “expressly permit fiduciaries of 401(k) plans to make digital assets an investment option.”

The NY attorney general emphasized that the Financial Freedom Act of 2022 would “prevent the Secretary of Labor from restricting 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 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 “extremely dangerous,” 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.