401(k) plan or open to crypto assets, can Americans' retirement funds buy coins?

Article: FinTax

In the United States, tens of millions of wage earners rely on the 401(k) plan to plan for retirement. However, for a long time, investment options within the plan have been highly conservative, and alternative assets such as cryptocurrencies, private equity, and others have been difficult to access, limiting participants’ investment choices. In March 2026, the U.S. Department of Labor (DOL) issued a proposed rule clarifying that trustees of individual account plans like 401(k)s can include products with crypto assets, private equity, real estate, and other alternative assets in the investment menu, and establish a process-based safe harbor. Although the rule is still in the public comment stage, the language indicates that U.S. regulators are sending clearer signals regarding evaluation standards for alternative asset investments like crypto assets.

Crypto assets have gradually become institutionalized and mainstreamed. If included in investment lists, they could open the door to diversification for ordinary Americans’ retirement accounts; however, the introduction of alternative assets has also sparked discussions among the public and market institutions about balancing risk control, innovation, and participant protection. This article will start from the background of the proposed rule, outline its core mechanisms and applicable scenarios, interpret its institutional significance within the macro policy framework of Trump-era crypto policies, and analyze potential impacts.

1 Background of the Proposed Rule

The 401(k) plan is one of the main retirement savings tools in the U.S., named after Section 401(k) of the Internal Revenue Code of 1986. This plan allows employees to deduct wages pre-tax for savings, and employers typically match a certain percentage of employee contributions. For these savings, employees can choose their allocations from the investment menu provided by the plan platform, such as stock funds, bond funds, etc. These contributions are held in a separate trust account, fully segregated from the employer’s corporate assets, managed by plan trustees—usually the employer. The specific options on the investment menu are ultimately determined and approved by the plan trustee, supported by a third-party record-keeping organization that provides platform support, administrative services, and advisory options. Trustees have the final decision-making authority and bear legal responsibility. By the end of 2025, assets in these plans exceeded $10.1 trillion, comprising the vast majority of similar retirement plans, covering about 70 million active participants, affecting over 100 million Americans.

As a key supplement to Social Security, the 401(k) plan is a significant source of retirement income for U.S. residents. Therefore, the choice of investment menu options is crucial for the accumulation of retirement wealth among plan participants, directly impacting whether tens of millions of ordinary Americans can maximize risk-adjusted returns and achieve diversification through long-term savings. However, the existing regulatory framework, the Employee Retirement Income Security Act of 1974 (ERISA), imposes strict prudence obligations on plan trustees, requiring them to perform their duties with prudence, loyalty, and diligence. The “prudent person” standard mandates that trustees act solely in the interest of participants and beneficiaries, exercising the care, skill, prudence, and diligence that a prudent person acting in a similar capacity and familiar with such matters would use under the circumstances. (a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and… with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.) Because this normative language is principle-based and lacks clear operational guidance, trustees often face significant uncertainty when fulfilling their compliance obligations.

If a trustee is found to violate the prudence duty, they may face strict post-violation liabilities, including compensating for plan losses caused by the breach—restoring the plan to the state it would have been in had the breach not occurred. This includes not only actual losses but also unrealized investment gains that should have been achieved. Additionally, any improper benefits obtained due to breach must be returned to the plan. Courts may also impose equitable remedies, such as restricting the trustee from continuing to serve or requiring corrective actions in investment arrangements. For example, in Tussey v. ABB, Inc., trustees faced approximately $35 million in damages for breach of fiduciary duty. Under this context, to avoid legal risks, trustees tend to adopt more cautious or conservative investment strategies, favoring traditional asset classes with clearer risk profiles, market acceptance, and mature evaluation systems, such as stocks and bonds. Alternative assets like cryptocurrencies and private equity, due to their high volatility, complex valuation mechanisms, and uncertain regulatory outlooks, have been almost entirely excluded from the investment menu, limiting participants’ opportunities for diversification.

For the U.S. 401(k) system, the proposed rule reflects a loosening of the conservative asset allocation pattern heavily reliant on traditional assets, in the context of the gradual mainstreaming of crypto assets. If finalized, the new regulation could allow alternative investments, including crypto assets, to be incorporated into the investment menu, providing new options for retirement asset allocation.

2 Core Mechanisms of the Proposed Rule

The Department of Labor’s proposed rule retains the core requirement of “considering relevant facts and acting accordingly” from the investment duties regulation, but only provides a more operational judgment framework for the selection of “designated investment alternatives” (DIAs) in participant-directed individual account plans. It clarifies how trustees can fulfill ERISA Section 404(a)(1)(B)’s prudence obligation through a process-based safe harbor. This framework adheres to an asset-neutral principle, imposing no bans or mandates on specific asset classes (including crypto assets), but requiring that decision-making processes be objective, thorough, and analytical. The following will first detail the construction of the process-based safe harbor, then discuss its specific normative pathways for including crypto assets as DIAs.

2.1 Construction and Elements of the Process-Based Safe Harbor

A safe harbor generally refers to conditions under which a person’s conduct is presumed to meet legal obligations, reducing legal uncertainty. In the proposed rule, the safe harbor does not list “permitted or prohibited investment types” but establishes a set of decision-process standards that indirectly define the compliance boundaries for trustees’ prudence. Specifically, when a trustee establishes and maintains an investment menu for a participant-directed individual account plan (where the trustee designs and offers a limited list of investment options, allowing participants to direct their assets), they must evaluate each designated investment alternative against six relevant factors through necessary, objective, comprehensive, and analytical assessments. These factors form the core analytical framework for trustees to discharge their prudence duties. If the trustee, following this process, conducts assessments and judgments that meet the requirements, and can reasonably perform this process, then their judgments—including the weighing of factors—are presumed to be consistent with ERISA Section 404(a)(1)(B), and will be given significant deference in judicial review. In other words, as long as the trustee follows these procedural requirements, a “presumption of prudence” is established, reducing the risk of liability due to poor investment performance.

This “process-based safe harbor” is defined as such because it does not evaluate based on investment outcomes or asset classes but emphasizes whether the trustee’s decision-making process was reasonable, thorough, and reviewable. The proposed rule continues and strengthens the prudence standard established in Section 404(a)(1), which states that as long as the trustee considers relevant facts and circumstances and makes appropriate analyses and judgments, they are deemed to have fulfilled their prudence obligation. By further refining this standard into an operational framework, the rule maintains the strength of the prudence requirement while reducing uncertainty in its application.

Specifically, the safe harbor’s six factors are: Performance, Fees, Liquidity, Valuation, Performance Benchmark, and Complexity.

① Performance. Trustees must consider a reasonable number of similar options and determine the “risk-adjusted expected returns” of each designated investment alternative, after deducting expected fees and expenses over an appropriate time horizon, to promote the plan’s goals—maximizing risk-adjusted returns net of costs for participants and beneficiaries. This does not require choosing the highest-yielding investment but rather maximizing returns at an appropriate risk level. The Federal Register explicitly states that selecting lower-yield, low-risk strategies is often prudent. The time horizon for performance measurement is also important; given the long-term nature of retirement investments, greater weight should be given to long-term historical performance, which is considered a reasonable approach.

② Fees. Trustees must consider a reasonable number of similar alternatives and determine whether the fees and expenses of each designated investment are appropriate, considering their risk-adjusted expected returns and any additional value they provide toward plan objectives. The term “value” includes benefits, features, or services beyond risk-adjusted returns. A higher fee does not necessarily violate prudence if the trustee believes the higher-cost option offers better service or other benefits. For example, choosing a higher-fee share class with superior customer service and communication ratings, facilitating participant access and understanding, can be justified. Key fee considerations also include share classes, lifetime income options, risk mitigation strategies, and active management.

③ Liquidity. Trustees must prudently assess whether the designated investment alternatives have sufficient liquidity to meet both plan-level and individual participant needs. Since participant-directed plans are long-term savings tools, trustees are not required to select only fully liquid products. A prudent decision process may involve sacrificing some liquidity for higher risk-adjusted returns. Considerations include immediate liquidity needs due to retirement, separation, financial hardship, and short-term plan events like termination, recordkeeper changes, or mergers. When evaluating liquidity, trustees should balance restrictions against expected returns; if the expected return compensates for liquidity limitations, investing fully in less liquid assets may be reasonable.

④ Valuation. Trustees must ensure that designated alternatives have appropriate valuation measures that are timely and accurate for plan needs. For publicly traded assets, reference to exchange prices suffices. For private assets, trustees should verify adherence to recognized valuation standards and ensure valuation independence and absence of conflicts of interest. Conducting proper due diligence (reviewing financial statements, offering documents) and avoiding complex related-party valuations are necessary to meet prudence.

⑤ Performance Benchmark. Trustees must determine that each designated alternative has a meaningful benchmark, and compare its risk-adjusted expected return to this benchmark. A “meaningful benchmark” reflects similar objectives, strategies, and risk profiles, such as comparable investments, indices, or other comparators. When selecting benchmarks, trustees should consider strategy alignment, risk compatibility, availability, and whether to construct or adopt a composite benchmark, possibly with independent expert assistance.

⑥ Complexity. Trustees must prudently evaluate the complexity of each designated alternative and confirm whether they possess sufficient skills, knowledge, experience, and capacity to fulfill ERISA obligations, or whether they need to seek qualified investment advice or management assistance. This standard covers due diligence on fee structures and service value, especially for private assets and complex incentive arrangements. If trustees lack understanding and allow participants to pay high fees for inefficient services comparable to cheaper alternatives, they may be deemed to have failed prudence.

2.2 Normative Pathways for Including Assets in the Investment Menu

While the proposed rule does not explicitly set licensing or prohibition rules for crypto assets, it is widely interpreted as relaxing restrictions on crypto inclusion. First, the preamble explicitly states that the guidance issued during the Biden administration regarding 401(k) plans has been rescinded. That guidance warned trustees to exercise extreme care when including cryptocurrencies and suggested such investments might conflict with ERISA requirements. Its withdrawal removes the factual restrictions based on liability concerns. Second, the process-based safe harbor significantly reduces compliance uncertainty and potential liability risks when trustees consider new asset types, shifting the risk-reward balance. Although crypto assets remain under the general prudence obligation, they are no longer automatically restricted but can be included as “permissible under certain conditions.”

Overall, under this process-based safe harbor framework, crypto assets are not subject to separate admission or prohibition rules but are incorporated into a unified prudence review system. Whether they can enter the investment menu depends on whether trustees can demonstrate their decision’s reasonableness and compliance within the established analytical framework, using the safe harbor’s prudence judgment.

3 Continuation of Trump’s Crypto Policy in the Proposed Rule

From a macro perspective, this proposed rule continues Trump-era policies on crypto assets in the retirement domain. On August 7, 2025, President Trump signed Executive Order EO 14330, “Democratizing Access to Alternative Assets for 401(k) Investors,” which states that every American preparing for retirement should, when trustees deem appropriate, gain access to alternative assets that offer risk-adjusted return enhancements and diversification opportunities. “Alternative assets” broadly include private market investments, real estate, and actively managed investment vehicles investing in digital assets. The order directs the Department of Labor to revisit existing regulations, clarify positions, establish safe harbors, and reduce regulatory burdens and litigation risks, enabling 401(k) participants to access these assets on equal footing with institutional investors. The proposed rule is a concrete implementation of this order, formally integrating crypto assets and other emerging assets into the retirement system.

As part of Trump’s crypto policy, the task of the proposed rule is not to eliminate or create new mandatory requirements outside ERISA’s prudence obligations but to clarify and supplement existing regulatory frameworks. The 29 CFR §2550.404a-6 clause in the proposed rule is based on the “Investment Duties” regulation (29 CFR Part 2550, Section 404a), providing more operational guidance for trustees in selecting investment options.

4 Future Impacts of the Proposed Rule

The proposed rule does not merely relax restrictions on certain assets but reconstructs the prudence standards for retirement plan trustees through the safe harbor mechanism. If finalized, its impacts are expected not only to expand investment options but also to influence market supply, product standardization, institutional participation, and tax incentives.

4.1 Overall Market Promotion for Crypto Assets

If the rule is adopted, it will mark a shift from a fact-based restriction on asset classes under ERISA to a strict process-oriented prudence review, providing clearer regulatory pathways for including crypto assets in 401(k) plans. The U.S. retirement market, with over $10 trillion in 401(k) and other defined contribution plans, approaches a total of nearly $50 trillion in retirement assets. Once the rule is implemented, crypto assets passing the safe harbor review could attract long-term, stable institutional capital into mainstream cryptocurrencies like Bitcoin and related ecosystems. This would increase long-term institutional funding, reduce reliance on market cycles and retail speculation, and promote long-term holding, thereby dampening short-term volatility.

Furthermore, the rule’s implementation will accelerate the institutionalization and standardization of crypto markets. To meet the safe harbor’s requirements, plan trustees will need to conduct thorough, objective, and comprehensive evaluations of crypto-related products, driving product developers to offer more transparent fee structures, independent valuation mechanisms aligned with GAAP, meaningful performance benchmarks, and understandable complexity schemes. These improvements will enhance product compliance and review standards, attracting qualified asset managers, custodians, and advisors into the retirement space, and fostering the development of crypto funds, ETFs, valuation, reporting, and risk management services.

4.2 Safe Harbor as a Pathway for Crypto Investment Compliance

The safe harbor provides a clear, operational compliance pathway for trustees to include crypto assets as DIAs. If trustees conduct necessary, objective, comprehensive, and analytical assessments of the six core factors and document their judgments, their decisions will be presumed “prudently reasonable” and highly respected in court, significantly reducing litigation risks from investment volatility. However, due to crypto’s high volatility, 24/7 trading, non-traditional valuation, technical complexity, and overlapping regulations, trustees face challenges. They must dedicate more time, resources, and expertise to thoroughly document and analyze the six factors. Insufficient documentation, superficial considerations, or failure to compare a reasonable number of alternatives may still lead courts to scrutinize the substantive reasonableness, limiting the safe harbor’s protection.

4.3 Tax Incentives for 401(k) Portfolio Changes

The core of the U.S. retirement account system is the tax deferral mechanism, encouraging long-term savings. Under current rules, both 401(k) and IRA accounts allow investment gains to grow tax-deferred during accumulation and be taxed upon qualified withdrawals, deferring tax burdens over time. If crypto assets are permitted to be included through compliant channels, their related gains could also benefit from tax deferral, aligning their tax treatment with traditional assets.

This arrangement affects how crypto gains are taxed: in taxable accounts, frequent trading triggers immediate tax obligations, while within retirement accounts, price fluctuations and portfolio adjustments generally do not generate immediate tax liabilities. Short-term trading within retirement accounts thus faces less tax suppression, making crypto assets more operable as long-term holdings. However, this tax advantage mainly benefits investors; the supply side depends on whether trustees can justify inclusion under prudence standards. Although tax deferral may increase demand, the actual supply of crypto assets in retirement plans remains uncertain due to the constraints of the process-based safe harbor. Moreover, tax deferral does not necessarily enhance crypto’s attractiveness, as high volatility and lack of stable risk premiums may disadvantage them in long-term, after-tax return comparisons. Ultimately, relaxing rules does not confer extra institutional advantages but places crypto assets on the same long-term, post-tax evaluation footing as other assets.

5 Conclusion

Overall, the U.S. Department of Labor’s proposed rule, by introducing a process-based safe harbor, fundamentally reshapes the application of ERISA’s prudence obligations. The core shift is from a result-oriented, uncertain principle to a process-focused, operational compliance pathway. Under this framework, crypto assets face both institutional opportunities and stricter compliance requirements. Whether the rule will be finalized, whether the text will be adjusted after public comments, and whether crypto assets can be broadly integrated into 401(k) plans depend on future regulatory developments, market infrastructure maturity, product standardization, and trustee expertise.