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AG James urges Congress to prohibit crypto investments in 401(k) plans

By Eric Reinhardt (


New York Attorney General Letitia James

New York Attorney General Letitia James on Nov. 22 urged congressional leaders to adopt legislation that would prohibit investing retirement funds in digital assets, such as cryptocurrencies, digital coins, and digital tokens. 

Individual retirement accounts (IRAs) and defined-contribution retirement plans, like 401(k) plans and 457 plans for government employees, are key retirement investments for millions of Americans. 

Recently, a major financial institution has offered as an investment option in its 401(k) plans, and other financial firms are expected to follow suit. With recent crypto-market crashes and other market turbulence, James stressed the need to protect workers’ retirement funds and avoid the dangers of risky cryptocurrencies.

“Investing Americans’ hard-earned retirement funds in crashing cryptocurrencies could wipe away a lifetime’s worth of hard work,” the state AG said. “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. I urge Congress to take action to protect working families from having their retirement accounts dry up because of crypto investments.”

Concern outlined

The attorney general’s office cites two federal bills that would allow crypto investments in retirement plans and prevent regulators from restricting access to these investments in such plans. The Retirement Savings Modernization Act would put 401(k) retirement savings at risk by “exposing them to the volatility and illegality of cryptocurrencies,” per James. In her letter, the attorney general contends that recent high-profile failures of crypto companies make digital assets “unsuitable” retirement investments. 

In November, the value of many cryptocurrencies plunged after one of the largest crypto exchanges in the world, FTX Trading Ltd., collapsed. In May 2022, many cryptocurrencies reached “significant lows” following the crash of a so-called stable coin, TerraUSD. 

The failure of TerraUSD spread and resulted in $500 billion in losses into the broader crypto market.

Aside from such failures, AG James cautioned that cryptocurrency prices swing wildly because they are purely speculative rather than an investment in future cash flow. 

In addition, she warned that cryptocurrencies are often an “instrument for fraud and crime.” For example, the Federal Trade Commission (FTC) recently reported that since the start of 2021, more than 46,000 people have reported losing over $1 billion total in crypto to scams. 

The FTC further noted that no institution is available to flag suspicious transactions and attempt to stop fraud before it happens and that crypto transfers “cannot be reversed.” No regulator, state or federal, examines most issuers of cryptocurrencies, James’ office noted. Safeguards like those provided by the Federal Deposit Insurance Corporation (FDIC) or the Securities Investor Protection Corporation (SIPC) aren’t available to “protect investors from the failures of digital asset companies.” 

In her letter, the New York attorney general described legislation that Congress could adopt to protect workers’ retirement savings from crypto losses, including making minor amendments to existing statutory restrictions on how retirement savings may be invested.    

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