Crypto Innovation Act endangers $6.5 trillion in retirement funds! U.S. Teachers' Union: Opposes passage

The American Federation of Teachers (AFT) has written to Senate Banking Committee Chairman Tim Scott, strongly opposing the “Responsible Financial Innovation Act,” warning that the bill threatens the retirement security of 1.8 million members and could lay the groundwork for the next financial crisis if passed. The total assets of public pension funds in the U.S. amount to approximately $6.5 trillion, and the AFT is concerned that the bill grants “mainstream legitimacy” to crypto assets, potentially forcing traditional retirement plans to engage in high-risk investments.

Tokenized Stocks Clause: Weakening Securities Law’s Trojan Horse

(Source: AFT)

The AFT specifically criticizes the provision in the draft bill that allows companies to tokenize stocks and trade them on-chain, believing this will weaken the transparency and reporting mechanisms of existing securities law. If companies can bypass registration and disclosure obligations, pension funds and 401(k) plans could unknowingly hold unregulated assets. Winton pointed out that this would “undermine the safety net that workers rely on throughout their lives.”

The danger of this clause lies in its concealment. On the surface, tokenizing stocks may seem like a technological upgrade to improve trading efficiency and settlement speed. But in reality, it creates opportunities for regulatory arbitrage. Traditional stocks are protected by strict information disclosure requirements, financial audits, insider trading bans, and other regulations that have been refined over decades to protect investors.

Once stocks are tokenized and traded on blockchain, tracking and law enforcement become significantly more difficult. On-chain transactions can be anonymous, and cross-border flows are more freely enabled, providing opportunities for market manipulation and insider trading. For pension funds holding these tokenized stocks, they may unknowingly assume risks far greater than those associated with traditional stocks.

The AFT’s concerns are not unfounded. According to the National Conference on Public Employee Retirement Systems, by Q2 2025, the total size of public pension funds in the U.S. will be about $6.5 trillion, including teachers’ retirement assets. These funds represent “the deferred earnings of workers’ decades of labor” and should be invested in relatively safe and well-regulated assets. Allowing tokenized stocks into these funds is effectively using teachers’ retirement savings for high-risk financial experiments.

Three Major Flaws of the Bill Threatening Retirement Security

Regulatory Arbitrage: Tokenized stocks may bypass traditional securities registration and disclosure obligations

Serious Lack of Transparency: While on-chain transactions are traceable, identifying actual controllers is difficult; insider trading and market manipulation are hard to detect

Forced Exposure Risks: The bill grants “mainstream legitimacy” to crypto assets, potentially indirectly compelling pension funds to allocate to such assets

Winton emphasized in the letter that most public pension funds have not engaged in crypto assets. If legislation forcibly grants “mainstream legitimacy” to these assets, traditional retirement plans may be forced to engage in high-risk investments. This “passive exposure” is the scenario most feared by unions: pension managers might hold tokenized assets due to index allocations, active fund manager decisions, or recommendations from asset management firms, with teachers at the grassroots unaware and unable to control this exposure.

Insufficient Anti-Money Laundering and Fraud Protections: Regulatory Gaps Questioned

The AFT also worries about the bill’s insufficient regulations for anti-money laundering and fraud prevention. The letter criticizes that the legislation “offers almost no action against the widespread illegal activities and anonymous transactions in the crypto market,” and may instead give malicious actors more room to manipulate the market. This criticism points to long-standing issues in the crypto space: while anonymity and decentralization are technical features, they also facilitate crime.

In recent years, numerous cases involving crypto scams and money laundering have shocked the market. Sam Bankman-Fried of FTX was sentenced for fraud and money laundering involving over $8 billion. Binance was fined $4.3 billion by U.S. authorities for AML compliance failures. Tornado Cash mixers have been accused of facilitating over $7 billion in money laundering. These cases demonstrate that, in the absence of effective regulation, the crypto market indeed faces serious illegal activity problems.

Although the “Responsible Financial Innovation Act” includes “responsible” in its name, the AFT believes its actual content is irresponsible. The bill attempts to balance innovation and investor protection, but from the union’s perspective, it overly favors the former at the expense of the latter. Especially for assets related to retirement savings for millions of Americans, any relaxation of regulation could have catastrophic consequences.

Earlier, the AFL-CIO, the largest labor union in the U.S., also sent a letter to Congress in October criticizing the bill as “not protecting consumers and workers, but exposing the entire financial system to greater risks.” This bipartisan opposition among unions underscores their widespread concern about crypto assets entering the pension system. Labor unions represent blue-collar and middle-class workers, who tend to be more cautious and conservative regarding financial innovation.

Balancing Innovation and Safety: A Difficult Challenge

This bill, promoted by Senator Cynthia Lummis, aims to establish a regulatory framework for crypto assets, clarifying the jurisdiction of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Supporters believe that a clear regulatory framework will promote innovation and attract investment, helping the U.S. maintain a competitive edge in global crypto development. However, the AFT believes that the draft bill overly downplays the volatility and risks of crypto assets.

Currently, there are still disagreements between Republicans and Democrats on the bill’s content. Some lawmakers argue that the bill will bring a “balance between innovation and regulation,” but organizations including the teachers’ union and the accounting association warn that the current draft fails to establish a comprehensive risk management framework. The AFT urges the Senate to pause and reevaluate the long-term impacts on the pension system and financial stability.

The union finally calls on Congress to “prioritize protecting workers’ retirement security and economic stability over rushing immature crypto legislation.” This clash between teachers’ unions and the Senate is essentially a conflict between conservative labor interests and technological innovation, and the outcome will influence the financial futures of millions of American workers.