Opinion | Fiduciary Duty | ERISA | Crypto Governance | Institutional Risk
Who’s Dipping In—and What’s at Stake
Pension funds are beginning to invest in crypto, cautiously and selectively. Wisconsin’s state pension fund adopted exposure via spot Bitcoin ETFs. Michigan’s retirement system made a multi-million-dollar allocation. A UK pension scheme allocated 3% to Bitcoin, advised by Cartwright. Ontario Teachers’ Pension Plan invested in FTX—and lost $95 million. These examples show that pension funds are dipping their toes into crypto, mostly through ETFs and crypto-exposed equities, not direct token holdings. But even this limited exposure raises systemic questions. The pension fund isn’t a venture capitalist. It is a steward of futures. And when futures are staked on fiction, collapse becomes cultural.
A Warning
Pension funds are designed to be guardians of long-term trust. When they enter ecosystems built on emotional liquidity, symbolic governance, or narrative-driven speculation, they risk more than volatility. They risk reputational implosion, fiduciary breach, and symbolic erosion—where retirees lose not just money, but faith in the system. The chart doesn’t just dip. It disenchants.
Why Tokenized Ecosystems Are Structurally Incompatible
Crypto ecosystems are not just volatile. They are narratively engineered. Value is driven by stories of decentralization, empowerment, and revolution—stories that are memetic, unregulated, and easily manipulated. Pension funds investing in these environments aren’t just exposed to price swings. They’re exposed to belief collapses. Traditional assets fluctuate based on earnings and macro trends. Tokenized assets fluctuate based on emotion, community drama, and governance theater. DAOs (Decentralized Autonomous Organizations) simulate democracy but concentrate power among insiders. Token-based voting validates wealth, not consensus. Pension funds risk legitimizing systems that perform inclusion while engineering exclusion.
Legal Gray Zones and Regulatory Mirage
Crypto ventures often operate in legal ambiguity. Compliance frameworks shift faster than risk models can adapt. The law doesn’t chase the crime—it chases the code. And code moves faster. Pension trustees who invest in DAOs or crypto assets may be breaching key legal obligations tied to fiduciary duty, governance standards, and risk management mandates. In the United States, the Employee Retirement Income Security Act of 1974 (ERISA) governs pension oversight. Its provisions are not optional. They are structural.
Section 404(a)(1): The Duty of Prudence and Loyalty
This cornerstone of ERISA requires fiduciaries to act solely in the interest of plan participants, carry out duties prudently, diversify investments, and follow plan documents. Crypto assets—especially DAOs and unregulated tokens—often lack transparency, governance, and reliable valuation. Investing in them may violate the duty of prudence. The fiduciary must act with the care, skill, and diligence of a prudent expert. And in crypto, prudence is often replaced by sentiment.
Section 406: Prohibited Transactions and Conflict of Interest
ERISA prohibits transactions that benefit parties in interest or involve self-dealing. If trustees invest in crypto ventures where they or related parties hold early-stage tokens, governance roles, or financial stakes, they may trigger prohibited transaction violations. The DAO isn’t just a protocol. It’s a proximity trap.
Section 409: Personal Liability for Breach
Fiduciaries are personally liable for losses resulting from breach of duty. If a pension fund suffers losses due to imprudent crypto exposure, trustees may be required to restore those losses.
Department of Labor Guidance and Political Whiplash
In 2022, the Department of Labor (DOL) warned that crypto investments pose significant risks to retirement accounts—citing speculative volatility, valuation complexity, custodial risk, and legal uncertainty. But the DOL is part of the executive branch. Its interpretation of ERISA shifts with political tides. A Trump-appointed Secretary could reverse crypto skepticism. A future Democratic administration could reverse that reversal. The law may be stable. Its enforcement is political. And when futures are governed by guidance, the compass spins with each election.
ForUsAll v. DOL: A Legal Precedent Emerges
In a landmark case, ForUsAll—a retirement plan provider—sued the DOL for warning against crypto in 401(k) plans. The court held that the DOL’s guidance reaffirmed existing ERISA duties but did not create new obligations. Crypto is not categorically banned, but fiduciaries must demonstrate prudence and loyalty. Documentation, due diligence, and risk analysis become essential. The prudent expert rule applies. And in crypto, many fiduciaries lack the expertise to comply.
Implications for Pension Funds
No pension fund has yet been sued under ERISA for crypto exposure. But the precedent is set. Crypto investments are legally permissible only if fiduciaries can prove they meet ERISA’s standards. Future lawsuits could emerge if pension funds suffer losses without proper oversight. Pension charters also require investments to meet standards of corporate governance—transparent decision-making, shareholder accountability, auditable financials. DAOs fail these tests. They lack centralized oversight, enforceable contracts, and legal recourse. The pension fund is not a speculator. It is a steward of futures. And when futures are staked on volatility, the breach is not just legal—it is moral.