On August 7, the White House released a executive order that directs the work department that regulates retirement to accelerate access to alternative investments in employer-sponsored defined contribution (DC) Retirement plans, such as 401Ks. Alternative investments were defined to include private market investments, real estate, raw materials, infrastructure projects, lifetime income strategies – and especially “holdings in actively managed investment vehicles investing in digital assets.” (Oddly enough, Crypto was the only asset class where “actively administered” was specified in relation to the “direct or indirect” language used for everything else – a legislative bread crumb worth exploring.)
The Crypto industry – at least its asset management segment – cheered this latest presidential order that gave Crypto Manager’s access to a $ 12 trillion pool of very sticky US investment money. Coindesk’s coverage included industry actions like this one from Bitwise’s Matt Hougan: “This order is not about the government saying ‘Crypto belongs in 401(k)s. ‘It’s about the government getting out of the way and letting people make their own decisions. “
Herein lies the problem: Most people who participate in 401K plans do not make their own decisions or do it quickly. In fact, there is a law in place to make sure participants do not have to decide at all.
The Pension Protection Act of 2006 solved a thorny problem for employers: What to do when 401K participants do not choose their own investments. In the past, employers were facing potential responsibility for any standard investment that worked poorly. The law provides employers safe port protection if they make standard selection for a “qualified standard investment option” (Qdia) -Normally a target date or a balanced fund. HR departments no longer had to worry about being sued to select the “wrong” default setting.
While this solved the employer responsibility problem, it created an opportunity for people to neglect one of the most important investment decisions in their lives. Participants typically join their 401K under the chaos by starting a new job – dealing with health insurance, taxes, boarding and actually learning the job. Faced with investment choices, they do not understand, many simply go with the flow and accept the standard setting that their employer has chosen, often a target date fund with a retirement date that roughly matches their age. Glidepath concept – automatically changing from stocks to bonds when retirement methods – create a false sense of security. Participants assume they are “all set” simply by not opting out and never visiting the decision. Years or decades can pass.
Vanguards 2025 “How America Saves” report reveals the remarkable stickiness of breaches: 61% of the plans now offer automatic registration, which achieves 94% participation rates versus only 64% for voluntary registration. Almost all auto-registration plans designate target date funds as their breach and among plans with qualified standard investment alternatives use 98% target date funds. The result? A fantastic 84% of participants use target date funds, with 64% of all contributions flowing into them-up from only 46% in 2015. Most stories of all: 71% of target date investors have only one target date fund, and only 1% of these “pure” investors made every subject in 2024, showing how powerful is standard to defend behavior.
So why not include digital asset allocations or strategies in target date funds or other QDIs, giving access to the widest set of DC plan participants? The incentives do not appear to be there. Participants, employers, target date fund managers and DC journal drivers have all limited incentives to change the status quo. Each layer of this system benefits from accumulating and retaining assets. Founders may have incentives to introduce new, potentially higher returns or better diversifying investment types, but they have to navigate through multiple portguards to reach investors who may never even look at their choices. And employers will certainly not advocate change.
The irony is rich: The system designed to democratize pension savings has not democratized at all.
Of course, some employees are deeply interested in DC plan investment options and will require their employers to add choices to alternatives and crypto. We are not worried about these people – they will find a way – but they are in the minority. The mistake lies in assuming that all young workers or any demographic group will uniformly embrace crypto access in their 401K plans. The reality is that most participants of all age groups operate on autopilot. If digital assets log several years as being among the highest performing asset classes, it will be a shame if the vast majority of 401K participants who make standard choices do not come to the trip.
