Introducing Crypto Assets into 401(k) Retirement Plans from a Historical Perspective
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Introducing Crypto Assets into 401(k) Retirement Plans from a Historical Perspective
Buying crypto assets with pension funds is equivalent to "hodling," which amounts to another "strategic crypto reserve."
Navigating Web3 tides with focused insightsAuthor: Chen Mo cmDeFi
On August 7, 2025, U.S. President Donald Trump signed an executive order allowing 401(k) retirement savings plans to invest in a broader range of assets, including private equity, real estate, and—introduced for the first time—crypto assets.
This policy is as straightforward as it appears:
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It provides national-level endorsement for the crypto market, signaling support for its maturation.
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It expands pension funds’ diversified investments and potential returns, but introduces higher volatility and risk.
In the crypto space, this is already historic.
Looking back at the evolution of 401(k), its pivotal turning point was during the Great Depression when pension reforms allowed investment in stocks. Despite differing historical and economic contexts, this shift bears strong similarities to today’s trend of incorporating crypto assets.
1/6 · Pension System Before the Great Depression
From the early 20th century through the 1920s, U.S. pensions were primarily defined benefit plans, where employers promised employees a fixed monthly income after retirement. This model originated in the late 19th century industrial era, designed to attract and retain workers.
Pension fund investment strategies at the time were highly conservative. The prevailing view was that pensions should prioritize safety over high returns. Bound by "legal list" regulations, investments were largely restricted to low-risk assets such as government bonds, high-grade corporate bonds, and municipal bonds.
This conservative approach worked well during periods of economic prosperity but limited potential returns.
2/6 · The Impact of the Great Depression and Pension Crisis
The Wall Street crash of October 1929 marked the beginning of the Great Depression. The Dow Jones Index fell nearly 90% from its peak, triggering a global economic collapse. Unemployment soared to 25%, and countless businesses went bankrupt.
Although pension funds had minimal direct exposure to stocks at the time, the crisis still affected them indirectly. Many employer companies collapsed, failing to meet their pension obligations, resulting in interrupted or reduced pension payments.
This led to public skepticism about employers' and the government's ability to manage pensions, prompting federal intervention. In 1935, the Social Security Act was enacted, establishing a national pension system. However, private and public pensions remained largely locally managed.
Regulators emphasized that pensions should avoid "gambling" assets like stocks.
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The turning point began: post-crisis recovery was slow, and bond yields started to decline (partly due to expanded federal taxation), laying the groundwork for future change. Insufficient yields gradually emerged, making it difficult to cover promised returns.
3/6 · Post-Depression Investment Shifts and Controversies
After the Great Depression, especially during and after World War II (1940s–1950s), pension investment strategies slowly evolved—from conservative bonds toward equities such as stocks. This shift was not smooth and sparked intense debate.
Post-war economic recovery coincided with stagnation in the municipal bond market, where yields dropped to a low of 1.2%, failing to meet guaranteed pension returns. Public pensions faced pressure from "deficit funding," increasing the burden on taxpayers.
Meanwhile, private trust funds began adopting the "Prudent Man Rule," originating from 19th-century trust law but reinterpreted in the 1940s to allow diversified investments for higher returns as long as overall management was "prudent." Initially applied to private trusts, this rule gradually influenced public pensions.
In 1950, New York State became the first to partially adopt the Prudent Man Rule, allowing up to 35% of pension assets to be invested in equities such as stocks. This marked a shift from rigid "legal lists" to flexible investment frameworks. Other states followed: North Carolina authorized corporate bond investments in 1957, allowed 10% stock allocation in 1961, and increased it to 15% by 1964.
This change sparked significant controversy. Opponents—mainly actuaries and labor unions—argued that stock investments repeated the mistakes of the 1929 crash, exposing retirement funds to market volatility. Media and politicians labeled it "gambling with workers' hard-earned money," fearing pension collapses during economic downturns.
To ease tensions, investment limits were strictly imposed (initially no more than 10–20%), with preference given to "blue-chip" stocks. Over time, fueled by the post-war bull market, the controversy faded, demonstrating the potential for higher returns.
4/6 · Subsequent Development and Institutionalization
By 1960, non-government securities accounted for over 40% of public pension holdings. New York City’s municipal bond holdings dropped from 32.3% in 1955 to just 1.7% in 1966. This shift reduced taxpayer burdens but made pensions more dependent on financial markets.
The Employee Retirement Income Security Act (ERISA) of 1974 extended the prudent investor standard to public pensions. Despite initial resistance, stock investments were ultimately accepted. However, issues surfaced later—such as massive pension losses during the 2008 crisis—reviving similar debates.
5/6 · Signal Emission
The current inclusion of crypto assets in 401(k) plans closely mirrors past controversies over stock investments. Both represent a leap from conservative to higher-risk assets. Clearly, crypto assets are currently less mature and far more volatile, making this an even more radical pension reform—and it sends several signals.
The promotion, regulation, and education around crypto assets will advance to a new level, helping improve public acceptance and risk awareness of these emerging assets.
From a market perspective, stock inclusion benefited from the long-term bull market in U.S. equities. For crypto to follow the same path, it must also establish a sustained upward trend. Moreover, since 401(k) funds are effectively locked in,
pension purchases of crypto assets amount to "hoarding coins," essentially creating another "strategic crypto reserve."
No matter how you interpret it, this is a major positive for Crypto.
Supplementary information below—professionals may skip
6/6 · Appendix - Meaning and Mechanics of 401(k)
A 401(k) is an employer-sponsored retirement savings plan established under Section 401(k) of the U.S. Internal Revenue Code, first introduced in 1978. It allows employees to contribute pre-tax (or post-tax, depending on the plan) portions of their salary into individual retirement accounts for long-term saving and investing.
The 401(k) is a "defined contribution plan," differing from traditional "defined benefit plans." Its core feature is joint contributions by employees and employers, with investment gains or losses borne entirely by the employee.
6.1 Contributions
Employees can deduct a portion of each paycheck as a 401(k) contribution into their personal account. Employers may offer "matching contributions," adding funds based on a percentage of the employee’s contribution, subject to company policy and not mandatory.
6.2 Investment
A 401(k) is not a single fund but a personally controlled account whose funds can be invested in a menu of options preset by the employer. Common options include S&P 500 index funds, bond funds, and mixed-asset funds. The 2025 executive order allows inclusion of private equity, real estate, and crypto assets.
Employees must choose their investment portfolio from the menu or accept a default option. Employers only provide choices, not active investment management.
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Benefit ownership: All investment gains belong solely to the employee, with no sharing required with the employer or others.
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Risk assumption: If the market declines, losses are fully borne by the employee, with no safety net.
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