Historically, 401(k) pensions have introduced Crypto assets.

Author: Chen Mo

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 cryptocurrency assets that are being introduced for the first time.

This policy is as straightforward to interpret as it appears.

• Provided "national-level" endorsement for the crypto market, massive capital inflow, and a new "strategic coin hoarding" pool.
• Pension funds diversify investments and returns, but introduce higher volatility and risk.

In the field of cryptocurrency, this is already enough to go down in history.

Looking at the development history of 401(k), its key turning point was during the Great Depression when pension reforms allowed for investment in stocks. Despite differing historical and economic contexts, this change bears many similarities to the current trend of introducing crypto assets.

1 Pension System Before the Great Depression

In the early 20th century to the 1920s, pensions in the United States were primarily based on Defined Benefit Plans, where employers promised to provide employees with a stable monthly pension after retirement. This model originated from the industrialization process in the late 19th century, aimed at attracting and retaining the workforce.

The investment strategy for pension funds at this stage is highly conservative. The prevailing view at the time was that pension funds should prioritize safety over high returns, and were mainly restricted by the "Legal List" regulations to low-risk assets such as government bonds, high-quality corporate bonds, and municipal bonds.

This conservative strategy works well during periods of economic prosperity, but it also limits potential returns.

2 The Impact of the Great Depression and the Pension Crisis

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

Although pension funds invested very little in stocks at that time, the crisis still impacted them through indirect channels. Many employer companies went bankrupt and were unable to fulfill pension commitments, leading to interruptions or reductions in pension payments.

This raised public doubts about the ability of employers and the government to manage pensions, prompting federal intervention. In 1935, the Social Security Act was enacted, establishing a national pension system, but private and public pensions were still locally dominated.

Regulators emphasize that pensions should avoid "gambling" assets like stocks.

Turning point begins: After the crisis, the economic recovery is slow, and bond yields start to decline (partly due to the expansion of federal taxes), which sows the seeds for subsequent reforms. At this time, the situation of insufficient yields gradually becomes apparent, making it difficult to cover the promised returns.

3 Investment Shifts and Controversies After the Great Depression

After the Great Depression, especially during and after World War II (1940s-1950s), pension investment strategies began to slowly evolve from conservative bonds to equity assets that included stocks. This transition was not smooth, but accompanied by intense controversy.

The post-war economic recovery has stagnated in the municipal bond market, with yields dropping to a low of 1.2%, failing to meet the guaranteed returns for pensions. Public pensions are facing pressure from "deficit payments," increasing the burden on taxpayers.

At the same time, private trust funds began to adopt the "Prudent Man Rule", which originated from trust law in the 19th century but was reinterpreted in the 1940s to allow for diversified investments in pursuit of higher returns, as long as the overall approach was "prudent". This rule was initially applicable to private trusts but gradually began to influence public pensions.

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 the "legal list" to flexible investing. Other states followed, such as North Carolina, which authorized investment in corporate bonds in 1957 and allowed a 10% allocation in stocks in 1961, increasing to 15% by 1964.

This change has sparked considerable controversy, with opponents (mainly actuaries and unions) arguing that investing in stocks is akin to repeating the mistakes of the 1929 stock market crash, putting retirement funds at risk of market volatility. Media and politicians have referred to it as "gambling with workers' hard-earned money," expressing concerns about pension collapse during an economic downturn.

To ease the controversy, the investment ratio is strictly limited (initially no more than 10-20%) and preferentially invests in "blue-chip stocks." In the following period, benefiting from the post-war bull market, the controversy gradually disappeared, proving its return potential.

4 Subsequent Development and Institutionalization

By 1960, non-government securities accounted for more than 40% of public pensions. The holding rate of New York municipal bonds fell from 32.3% in 1955 to 1.7% in 1966. This shift reduced the tax burden on taxpayers but also made pensions more reliant on the market.

The Employee Retirement Income Security Act (ERISA) was enacted in 1974, applying the prudent investor standard to public pensions. Despite initial controversies, stock investments were eventually accepted, but it also exposed some issues, such as the heavy losses in pensions during the 2008 crisis, reigniting similar debates.

5 signal release

The current 401(k) controversy surrounding the introduction of crypto assets is highly similar to the earlier controversies regarding stock investments; both involve a transition from conservative investments to high-risk assets. It is evident that the current maturity of crypto assets is lower and their volatility is higher, which can be viewed as a more aggressive pension reform. This also releases some signals that the promotion, regulation, and education of crypto assets will advance to a new level to assist people in their acceptance of such emerging assets and their risk awareness.

From a market perspective, the inclusion of stocks in pension plans benefits from the long bull market in the U.S. stock market. For crypto assets to replicate this path, they must also emerge from a stable upward market. At the same time, since 401(k) funds are effectively locked, pension funds buying crypto assets is equivalent to "hoarding coins", which is akin to another "strategic reserve of crypto assets".

No matter how you interpret it, this is a huge positive for Crypto.

6 Appendix - The meaning and specific operational mechanism of 401(k)

401(k) is an employer-sponsored retirement savings plan under Section 401 of the United States Internal Revenue Code, introduced in 1978. It allows employees to contribute to individual retirement accounts using pre-tax wages (or post-tax wages, depending on the specific plan) for long-term savings and investment.

401(k) is a type of "Defined Contribution Plan" that differs from the traditional "Defined Benefit Plan". Its core is that contributions are made jointly by employees and employers, while the investment gains or losses are borne by the individual employees.

6.1 Contribution

Employees can deduct a certain percentage (usually 1%-15%) from each paycheck as contributions to their 401(k), which is deposited into their personal accounts. Employers provide "matching contributions," which means they add funds based on a certain percentage of the employee's contributions (for example, 50% or 100%, with a limit usually set at 6% of the salary). The matching amount depends on the employer's policy and is not mandatory.

6.2 Investment

401(k) is not a single fund, but a personal account controlled by employees, with funds that can be invested in the "menu" options preset by the employer. Common options include: S&P 500 index fund, bond fund, mixed allocation fund, etc. The 2025 executive order allows for the inclusion of private equity, real estate, and crypto assets.

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

• Ownership of profits: Investment returns completely belong to the employee, without the need to share with the employer or others.
• Risk Bearing: If the market declines (such as during the 2008 financial crisis, with an average loss of 34.8% for 401(k)), the losses are to be borne by the employees themselves, with no safety net.

6.3 Withdraw

• A 10% penalty and income tax must be paid for withdrawals made before the age of 59.5, unless exceptions apply.
• Mandatory withdrawal starting at age 73, failure to withdraw will incur a penalty.