Pension funds typically have smaller allocations to alternative assets and high liquidity to mitigate risk, Allie Itami said.
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), Allie Itami, an attorney at Lathrop GPM, explained to Cointelegraph.
According to Itami, the Employee Benefits Security Administration (EBSA), which enforces ERISA regulations, cited the nascent and volatile nature of cryptocurrencies as the main reason for advising private pension plans against investing in digital assets. Itami explained:
“Regulators, including the Department of Labor and specifically the agency that enforces ERISA—EBSA—in 2022 issued compliance assistance guidance that was highly skeptical of cryptocurrencies in ERISA-covered plans. This has discouraged the inclusion of cryptocurrencies in ERISA-covered pension plans.”
This strict enforcement of ERISA regulations and the resulting fiduciary responsibility placed on private pension managers means that capital flows into crypto markets from retirement investment accounts will likely continue to be dominated by state pension plans until the guidance is revised.
State pension funds embrace crypto
Several state and municipal pension funds in the United States already have exposure to cryptocurrencies. In May, the Wisconsin State Investment Board revealed a $164 million investment in Bitcoin ETFs.
The state of Michigan followed suit in July, disclosing a $6.6 million investment in Bitcoin ETFs — later expanding its exposure to digital assets in November 2024 by acquiring 460,000 shares each of the Grayscale Ethereum Trust and Grayscale Ethereum Mini Trust.
Florida’s finance chief Jimmy Patronis — who is responsible for managing the state’s pension funds — is now advocating for the inclusion of Bitcoin BTCR$574,703 in the state’s pension programs. In a letter encouraging pension funds to consider Bitcoin exposure, Patronis highlighted Bitcoin’s role as “digital gold.”
In a subsequent appearance on CNBC, Patronis stated that "crypto is not going away" and cited Bitcoin's properties as a hedge against inflation and a resistance mechanism against central bank digital currencies.