Original title: "A historical look at the introduction of crypto assets into 401(k) pension plans"

Original author: Chen Mo cmDeFi (X: @cmdefi)

On August 7, 2025, US President Donald Trump signed an executive order allowing 401(k) retirement savings plans to invest in more diversified assets, including private equity, real estate, and, for the first time, crypto assets.

This policy is easy to interpret as it appears on the surface.

• Providing "national-level" endorsement for the crypto market and sending a signal to promote the maturity of the crypto market.
• Pension funds expand investment diversification and returns, but introduce higher volatility and risk.

In the crypto world, this is enough to go down in history.

Looking back at the evolution of 401(k)s, a key turning point was the passage of pension reforms during the Great Depression that allowed for stock investments. While the historical and economic contexts differ, this change shares many similarities with the current trend toward the introduction of crypto assets.

1/6 · Pension system before the Great Depression

From the early 20th century to the 1920s, U.S. pension systems were primarily based on defined benefit plans (DBPs), where employers promised to provide employees with a stable monthly pension after retirement. This model, originating from the industrialization process of the late 19th century, was designed to attract and retain workers.

During this period, pension fund investment strategies were highly conservative. The prevailing wisdom was that pension funds should pursue safety over high returns. Due to the "Legal List" regulations, pension funds were primarily limited to low-risk assets such as government bonds, high-quality corporate bonds, and municipal bonds.

This conservative strategy works well during economic booms, but it also limits potential returns.

2/6 · The Impact of the Great Depression and the Pension Crisis

The Wall Street Crash of October 1929 marked the beginning of the Great Depression. The Dow Jones Industrial Average plummeted nearly 90% from its peak, triggering a global economic collapse. Unemployment soared to 25%, and countless businesses went bankrupt.

Although pension funds rarely invested in equities at the time, the crisis still hit them indirectly: many employers went bankrupt and were unable to meet their pension commitments, leading to pension payments being interrupted or reduced.

This raised public doubts about the ability of employers and governments to manage pensions, prompting federal intervention. In 1935, the Social Security Act established a national pension system, but both private and public pensions remained locally dominated.

Regulators have stressed that pensions should avoid "gambling" assets such as shares.

......

The turning point began: The slow economic recovery after the crisis and the decline in bond yields (partly due to federal tax expansion) sowed the seeds for subsequent changes. It became clear that yields were insufficient to cover the promised returns.

3/6 · Investment Shifts and Controversies in the Post-Great Depression Era

After the Great Depression, and particularly during and after World War II (1940s-1950s), pension fund investment strategies began to slowly evolve, shifting from conservative bonds to equity assets, including stocks. This shift was not smooth and was accompanied by intense controversy.

Despite the postwar economic recovery, the municipal bond market stagnated, with yields falling to as low as 1.2%, failing to meet guaranteed pension returns. Public pensions faced pressure to pay deficits, increasing the burden on taxpayers.

At the same time, private trust funds began to adopt the Prudent Man Rule, a rule originating in 19th-century trust law but reinterpreted in the 1940s to allow them to diversify their investments in pursuit of higher returns, as long as the overall approach was “prudent.” This rule initially applied to private trusts but gradually began to affect public pension funds.

In 1950, New York State was the first to partially adopt the prudent man rule, allowing pension funds to invest up to 35% in equity assets (such as stocks). This marked a shift from a "legal list" to flexible investment. Other states followed suit, such as North Carolina, which authorized investments in corporate bonds in 1957 and permitted a 10% stock allocation in 1961, increasing it to 15% in 1964.

This change sparked considerable controversy. Opponents (primarily actuaries and labor unions) argued that stock investments would repeat the 1929 stock market crash and expose retirement funds to market volatility. The media and politicians called it "gambling with workers' hard-earned money," fearing a collapse of pension funds during an economic downturn.

To mitigate the controversy, investment proportions were strictly limited (initially no more than 10-20%), with a preference for blue-chip stocks. Later, benefiting from the postwar bull market, the controversy gradually faded, demonstrating its potential for returns.

4/6 · Subsequent development and institutionalization

By 1960, over 40% of public pension funds were held in non-government securities. New York State's municipal bond holdings fell from 32.3% in 1955 to 1.7% in 1966. This shift reduced the burden on taxpayers but also made pension funds more dependent on the market.

The Employee Retirement Income Security Act (ERISA) was enacted in 1974, applying prudent investor standards to public pensions. Despite initial controversy, stock investments were eventually accepted, but some problems were exposed. For example, the heavy losses suffered by pension funds in the 2008 crisis reignited similar debates.

5/6 · Signal release

The current debate surrounding the introduction of crypto assets into 401(k)s closely resembles the controversy surrounding the introduction of stocks, both involving a shift from conservative investments to higher-risk assets. Crypto assets are clearly less mature and more volatile at this point, which could be seen as a more radical form of pension reform, sending a number of signals.

The promotion, supervision, and education of crypto assets will all be taken to the next level to help people accept and increase their risk awareness of these emerging assets.

From a market perspective, stocks included in pension plans benefited from the long bull market in the US stock market. Crypto assets must also move out of a stable upward market to replicate this trend. At the same time, since 401(k) funds are essentially locked up,

Purchasing crypto assets with pension funds is equivalent to "hoarding coins" and is equivalent to another "strategic reserve of crypto assets."

No matter from which level you interpret it, this is a huge benefit for Crypto.

The following is supplementary information, professionals can skip it

6/6 · Appendix - The meaning and specific operation mechanism of 401(k)

A 401(k) is an employer-sponsored retirement savings plan under Section 401(k) of the U.S. Internal Revenue Code, first introduced in 1978. It allows employees to contribute pre-tax (or after-tax, depending on the plan) wages to an individual retirement account for long-term savings and investments.

401(k) is a "defined contribution plan". Unlike traditional "defined benefit plans", its core is that employees and employers make joint contributions, and investment gains or losses are borne by employees personally.

6.1 Contributions

Employees can have a percentage of their paycheck deducted from their 401(k) contributions and deposit them into their accounts. Employers can also offer a matching contribution, which adds a percentage of the employee's contributions. The matching amount depends on the employer's policy and is optional.

6.2 Investment

A 401(k) isn't a single fund, but rather an individual account controlled by the employee, where funds can be invested in a menu of options pre-selected by the employer. Common options include S&P 500 index funds, bond funds, and hybrid funds. The 2025 executive order allows for the inclusion of private equity, real estate, and crypto assets.

Employees select their portfolio from a menu or accept the default. Employers only provide options and are not responsible for the specific investments.

• Income Vesting: Investment income belongs entirely to the employee and does not need to be shared with the employer or others.
• Risk-taking: If the market falls, the losses are borne by the employees themselves, and there is no guarantee mechanism.

Original link