State Pension Plans Easier to Allocate Cryptocurrency Assets
State pension plans have an easier time allocating a portion of their assets to cryptocurrencies than private pension plans, which must adhere to fiduciary regulations under the Employee Retirement Income Security Act of 1974 (ERISA). Attorney Allie Itami of Lathrop GPM made this observation in an interview with Cointelegraph.
The Role of ERISA Regulations
According to Itami, the Employee Benefits Security Administration (EBSA), which enforces the ERISA regulations, cited the nascent and volatile nature of cryptocurrencies as the primary reason for cautioning against private pension plans investing in digital assets. Itami explained:
Regulators called the Department of Labor and specifically the agency that enforces ERISA — the EBSA — and in 2022, they came out with some compliance assistance guidance that was very skeptical about cryptocurrency in ERISA-covered plans.
This strict enforcement of ERISA regulations and the ensuing fiduciary liability placed on private pension managers means that capital inflows into the crypto markets from retirement investment accounts will likely continue to be dominated by state pension plans until the guidance is reversed.
The EBSA Guidance Letter
The EBSA guidance letter from 2022 provides insight into the regulatory hurdles faced by private pension plans. This document serves as a reminder of the complexities surrounding cryptocurrency investments in ERISA-covered plans.
State Pension Funds Embracing Crypto
Several state and municipal pension funds in the United States have already demonstrated a willingness to invest in cryptocurrencies. In May, the State of Wisconsin Investment Board revealed a $164 million investment in Bitcoin ETFs.
Michigan followed suit in July by disclosing a $6.6 million investment in Bitcoin ETFs — later broadening its exposure to digital assets in November 2024 by acquiring 460,000 shares each of the Grayscale Ethereum Trust and the Grayscale Ethereum Mini Trust.
Florida’s chief financial officer, Jimmy Patronis, is now pushing for Bitcoin (BTC) to be included in the state’s pension programs. Patronis noted Bitcoin’s function as "digital gold" in a letter urging the state pension funds to consider exposure to Bitcoin.
In a subsequent appearance on CNBC, Patronis said that "crypto is not going anywhere" and cited Bitcoin’s properties as a hedge against inflation and a resistance mechanism against central bank digital currencies.
The Potential for Crypto in Pension Funds
While regulatory hurdles may pose challenges for private pension plans, it remains to be seen whether these restrictions will remain in place. As the crypto market continues to evolve, it is possible that we will see changes to the EBSA guidance letter and increased flexibility for private pension plans to invest in cryptocurrencies.
In the meantime, state pension funds are likely to continue leading the way when it comes to cryptocurrency investments in pension funds. However, as Patronis noted, this trend may not remain static, and we can expect to see changes in the coming years.
The Role of Regulators
Regulators play a crucial role in shaping the landscape for cryptocurrency investments in pension funds. The EBSA guidance letter from 2022 serves as a reminder of the importance of regulatory oversight in this area.
As the crypto market continues to grow and mature, it is likely that we will see changes to the regulatory framework surrounding cryptocurrency investments in pension funds. However, for now, state pension plans appear to have an easier time allocating cryptocurrency assets than their private counterparts.
The Future of Crypto in Pension Funds
While there are challenges to be overcome, it remains to be seen whether these hurdles will be insurmountable. As the crypto market continues to evolve, we can expect to see changes to the EBSA guidance letter and increased flexibility for private pension plans to invest in cryptocurrencies.
In conclusion, state pension plans have an easier time allocating cryptocurrency assets than private pension plans due to regulatory hurdles surrounding ERISA-covered plans. However, this trend may not remain static, and we can expect to see changes in the coming years as the crypto market continues to grow and mature.
