The original article " 401(k) Plans Will Get More Fun " was translated by Odaily Planet Daily jk.

Matt Levine is a Bloomberg Opinion columnist covering finance, consistently ranking as the most read columnist on Bloomberg Finance. He was formerly the editor of Dealbreakers and has worked in investment banking at Goldman Sachs, as an M&A lawyer at Wachtell, Lipton, Rosen & Katz, and as an associate judge on the U.S. Court of Appeals for the Third Circuit.

401(k) plans

The traditional approach to retirement savings works like this: You work for a company for decades, receiving a salary. When you retire, the company continues to provide you with a pension. The company is obligated to pay you a fixed monthly amount. To fulfill this obligation, it saves and invests the money to ensure it has enough to cover your retirement. If the investments are profitable, the company has extra funds to keep; if they lose money, the company has to pay out of pocket to cover the amount owed to you. This situation is bad for the company (it has to pay extra) and bad for you, as it exposes you to credit risk. A US law called ERISA (the Employee Retirement Income Security Act) requires companies to manage their pension funds prudently. As trustees for retired employees, they cannot afford to lose the money.

Another way to save for retirement is to work for a company for decades, receiving a salary. You save and invest a portion of your salary. After retirement, the company doesn't provide a pension—you don't get one—and you rely entirely on your investments to live. If your investments are successful, you'll have enough to spend and some to spare. If your investments go badly, the lack of funds is your responsibility, not your employer's. If you're so inclined, you could even invest everything in meme stocks or sports betting, taking a gamble—though the results could be disastrous.

But in the United States in 2025, the most popular retirement savings method is the third one—the 401(k) plan, which is somewhere between the first two. In this method, you don't have a pension, and your company won't give you a fixed salary after retirement. Like the second method, you have to save money and invest it yourself every year (the company may subsidize your investment). But unlike the second method, you can't invest your money arbitrarily, such as in sports betting or your brother-in-law's vending machine business. The company will give you a menu of investment options, and you can only choose from them. [1] As a fiduciary, the company has an obligation to provide you with reasonable and prudent investment options. If there is an option on the menu that says "We take your 401(k) assets to Las Vegas and bet all on red," and you choose this option, and the ball lands on black, your retirement savings will be gone, and you can definitely win your lawsuit against your employer. (This is not legal advice.)

In other words: individuals are responsible for their own retirement savings, but not solely. Employers have a certain fiduciary obligation to guide their employees' investments and not let them arbitrarily decide. This also falls under the purview of ERISA, which seems to be a bit of a coincidence. In the past, companies provided pensions and had to manage them carefully, which led to the accumulation of expertise in retirement investing. Today, retirement savings require individual employees to make investment decisions, but companies still possess this expertise. Individual employees, on the other hand, sometimes prefer to take a gamble. Therefore, companies need to play a parental role, guiding employees' investment decisions and preventing them from losing all their money. If companies fail to fulfill this role conscientiously, they can be sued.

The key here is "suability." The standards for what constitutes prudent investments and what is acceptable in 401(k) plans have been constantly evolving. In the 19th century—before 401(k) plans or ERISA—courts sometimes held that investing in common stocks (as opposed to government bonds or mortgages) was imprudent, exposing trustees to potential lawsuits. When index funds were first introduced in the 1970s, some employers were hesitant, fearing that investing in all stocks without conducting due diligence on each one would breach their fiduciary duties.

By 2015, I wrote that "regulatory opinion was converging"—particularly within the U.S. Department of Labor, which is responsible for ERISA—that "index funds are good and should be encouraged; active management is bad and should be discouraged." The logic was:

Actively managed stock funds typically don't outperform the index and have much higher fees than index funds, so buying an index fund may be more prudent than hiring an active manager.

This view isn't universally shared. While actively managed mutual funds are still often offered in company 401(k) plans, there is pressure to offer index funds, and even greater pressure to control fees. Everyone knows that investing carries risk, and it's not necessarily the employer's fault if a fund on the 401(k) menu loses money. However, if a fund on the menu charges twice as much as another nearly identical fund, it certainly appears imprudent and could lead to legal action.

ESG investing (environmental, social, and governance investing) has recently become a focal point of controversy within 401(k) plans. In January, we reported on how American Airlines Group ran into trouble over ESG issues within its 401(k) plan. American Airlines didn't even offer ESG funds in its 401(k) plan—just regular, low-cost index funds—but those funds were managed by BlackRock, a company that has frequently discussed ESG. A Texas judge ruled that using employee funds for ESG investments was imprudent.

When people discuss what to put in a 401(k) plan and what not to put in it, the main focus is on:

Private equity, private credit and cryptocurrencies.

The core issue isn't whether you should be allowed to invest in these things, but whether you can sue your company if you lose money investing in them. Because the 401(k) system combines individual investment choices with the paternalistic management of the employer, and because you can sue your employer if they imprudently allow you to invest in something that loses money, employers tend to only offer investment options that are clearly "prudent" under current standards. In 2025, index funds will clearly be considered prudent. ESG funds are a bit more ambiguous in 2025. But what about private equity and cryptocurrencies? Is it prudent for employers to include these in 401(k)s?

The obvious answer is, "It wasn't prudent last year, but the standards have changed, and now it's prudent." This isn't a financial answer. It's not that private equity and cryptocurrencies were volatile and expensive in 2024, and suddenly a structural shift has made them safe and cheap. It's that in 2024, the US federal government was skeptical of cryptocurrencies and high-fee, opaque investments in 401(k)s, and in 2025, a new administration came to love them. Now, this shift is becoming official policy:

President Trump signed an executive order on Thursday allowing private equity, real estate, cryptocurrencies and other alternative assets into 401(k) plans, a major victory for industries hoping to grab a piece of the estimated $12.5 trillion in retirement accounts.

According to people familiar with the matter, the order will direct the Department of Labor to reevaluate its guidance on alternative asset investments in retirement plans governed by the Employee Retirement Income Security Act of 1974. The Department of Labor will also need to clarify the government's position on the fiduciary duties associated with offering asset allocation funds that include alternative assets...

Washington officials have been considering the directive for months, aiming to alleviate legal concerns that have long prevented alternative assets from entering most employee defined contribution plans. Retirement portfolios are heavily weighted toward stocks and bonds, in part because corporate plan managers are reluctant to take the risk of investing in illiquid, complex products...

Alternative and traditional asset managers are eager to capture a slice of the defined contribution market, which they see as the next frontier for growth. Many institutional investors, such as U.S. pension funds and university endowments, have reached internal ceilings on their investments in private equity amid slowing trading and a lack of allocations to clients.

From a fundamental perspective, putting illiquid private assets in a 401(k) makes sense: the core idea of a 401(k) is to keep your money in until retirement, so you don't need liquidity, and if there's a premium on illiquid assets, you should earn it. Furthermore, the private markets are the new public markets: as Byrne Hobart points out, "Private equity plus public-market owned companies look a lot like the companies that would have gone public 30 years ago." So if owning stocks in a 401(k) is prudent, then owning private equity makes sense, too.

On a deeper level, the idea that "the financial industry wants to sell to individual investors because it can't sell to institutions and the fees are too high" is simply the worst possible advertising for investment products. When the savviest asset management firms are eager to sell you something, you should consider whether you should buy it. Of course, this isn't investment advice. When cryptocurrency management firms are eager to sell you something, it could also be a sign of something.

That said, I'm not sure how much this is a story about the rise of private assets (and crypto) and how much it's a story about the decline of 401(k) paternalism. The bottom line is that Americans now have far more and more exciting investment options outside of their 401(k)s than they did a few years ago. You could buy stocks before, and now you can buy meme stocks, which is even more absurd. You can buy intraday options. You can do all kinds of private lending. You can buy 10x leveraged perpetual cryptocurrency futures on Coinbase. You can even, and I can't stress this enough, bet on sports from your brokerage account. You can't buy tokenized shares of OpenAI yet, but give it a month.

Driven by cryptocurrencies, meme stocks, and legal sports betting, the prevailing view of what ordinary people should invest in, should be allowed to invest in, and might enjoy investing has shifted. It's become more widely accepted that you should be able to make all sorts of crazy bets in your investment account. A little excitement is a good feature of financial markets, and providing you with some entertaining bets is a good function of the financial system. If that's the case, then your 401(k) system will also offer you some of those bets.

By the way: You can still buy low-cost broad public stock index funds! You can buy them in your brokerage account—right next to the "sports betting" button—and for the foreseeable future, you'll also be able to buy them in your 401(k). But your 401(k) probably offers some additional, wilder options. If you choose them and they don't work out, that's your fault.