New York AG Pushes To Prohibit Crypto Investments With Retirement Funds

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New York Attorney General Letitia James is pushing for a legislation to protect Individual Retirement Accounts (IRAs) and defined contribution plans, such as 401(k) and 457 plans, by preventing investment in risky digital assets such as cryptocurrencies, digital coins, and digital tokens, using these funds.

This was conveyed via an official letter addressed to Senators Ron Wyden and Mike Crapo as well as Representatives Richard Neal and Kevin Brady on behalf of the People of the State of New York.

The NYAG urged Congress to pass legislation to designate digital assets as assets that cannot be purchased using such retirement funds. She also urged Congress to reject the recently proposed Retirement Savings Modernization Act and Financial Freedom Act of 2022, which would expressly allow such investments.

If these two acts are passed, it would allow 401(k) plan fiduciaries to make digital assets an investment option, and also prohibit the Secretary of Labor from constraining or prohibiting investments in digital assets.

The AG noted that digital assets have no intrinsic value on which their prices are based even though they have become popular over the last decade. They generally do not provide investors with an ownership or equity interest in a company like a corporate stock although they are often marketed as investments to profit from.

The AG urged Congress to use the remaining time it has in the final weeks of this session to protect the retirement savings of all Americans by excluding digital assets from IRAs and defined contribution plans. One of the ways to do it is to amend 29 U.S. Code § 1104(a) and 26 U.S. Code § 408 to disallow purchases of digital assets with such funds, she added.

The AG added that her office has warned repeatedly of the extreme volatility and risks that many of these assets present for retail investors.

In May 2022, many cryptocurrencies reached then-record lows and investors lost hundreds of billions of dollars following the crash of TerraUSD. Over the past two weeks, the value of many cryptocurrencies fell to new all-time lows after crypto exchange FTX Trading collapsed and filed for bankruptcy.

The AG said she wants to ensure that people have adequate financial resources to live comfortably in their retirement years. She also said Congress historically has enacted laws to help American workers save for retirement and prohibit certain other asset classes from being purchased with retirement funds.

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