Originally published on: November 22, 2024
Managing pension plans can be a complicated affair, especially when it comes to investing in emerging assets like cryptocurrencies. However, state pension plans seem to have found a way to navigate these waters more smoothly compared to private plans.
According to attorney Allie Itami of Lathrop GPM, state pension plans have an advantage over private plans due to the flexibility they have in allocating funds to cryptocurrencies. This is because private plans must follow strict fiduciary regulations outlined in the Employee Retirement Income Security Act of 1974 (ERISA).
Itami explained that the Employee Benefits Security Administration (EBSA), which enforces ERISA regulations, has raised concerns about the uncertain and volatile nature of cryptocurrencies. This has resulted in private pension plans being cautious about investing in digital assets, as they could face fiduciary liability.
As a result, capital inflows into the crypto markets from retirement investment accounts are currently dominated by state pension plans. This trend is likely to continue until there is a change in guidance from the EBSA regarding crypto investments for private plans.
State pension funds in the United States have already started diversifying into cryptocurrencies. For example, the State of Wisconsin Investment Board made a significant investment of $164 million in Bitcoin ETFs. Michigan and Florida have also followed suit by investing in Bitcoin and other digital assets.
Florida’s chief financial officer, Jimmy Patronis, has been a strong advocate for including Bitcoin in the state’s pension programs. He sees Bitcoin as a valuable asset with properties that can act as a hedge against inflation and centralized digital currencies.
Overall, the trend of state pension plans embracing cryptocurrencies is growing, paving the way for more widespread adoption in the future. As the crypto market continues to evolve, it’s important for pension managers to stay updated on the latest laws and guidelines to make informed investment decisions. Subscribe to our newsletter for more insights on crypto laws and regulations.