401k(rypto)

On August 7, the White House released an executive order directing the Labor Department, which regulates retirement investing, to accelerate access to alternative investments in employer-sponsored defined contribution (DC) retirement plans, such as 401k’s. Alternative investments were defined to include private market investments, real estate, commodities, infrastructure projects, lifetime income strategies — and notably, “holdings in actively managed investment vehicles that are investing in digital assets.” (Curiously, crypto was the only asset class where “actively managed” was specified versus the “direct or indirect” language used for everything else — a regulatory breadcrumb worth exploring.)

The crypto industry — at least its asset management segment — cheered this latest presidential order granting crypto managers access to a $12 trillion pool of very sticky U.S. investment money. CoinDesk’s coverage included industry reactions like this from Bitwise’s Matt Hougan: “This order isn’t 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 don’t make their own decisions, or do so hastily. In fact, there is a law in place to make sure participants don’t have to decide at all.

The Pension Protection Act of 2006 solved a thorny problem for employers: what to do when 401k participants don’t choose their own investments. Previously, employers faced potential liability for any default investment that performed poorly. The act gives employers safe harbor protection if they make default elections a “Qualified Default Investment Alternative” (QDIA) — usually a target-date or balanced fund. HR departments no longer had to worry about being sued for picking the “wrong” default option.

While this solved the employer liability problem, it created an opportunity for folks to neglect one of the most important investment decisions of their lives. Participants typically join their 401k during the chaos of starting a new job — dealing with health insurance, taxes, onboarding and actually learning the job. Faced with investment choices they don’t understand, many simply go with the flow and accept whatever default option their employer has selected, often a target-date fund with a retirement date that roughly matches their age. The glidepath concept — automatically shifting from stocks to bonds as retirement approaches — creates a false sense of security. Participants assume they’re “all set” simply by not opting out, and never revisit the decision. Years or decades may pass.

Vanguard’s 2025 “How America Saves” report reveals the remarkable stickiness of defaults: 61% of plans now offer automatic enrollment, achieving 94% participation rates versus just 64% for voluntary enrollment. Nearly all auto-enrollment plans designate target-date funds as their default, and among plans with qualified default investment alternatives, 98% use target-date funds. The result? A stunning 84% of participants use target-date funds, with 64% of all contributions flowing into them — up from just 46% in 2015. Most telling of all: 71% of target-date investors hold only a single target-date fund, and only 1% of these “pure” investors made any trades in 2024, demonstrating how powerfully defaults shape behavior.

So, why not include digital asset allocations or strategies in target-date funds or other QDIAs, providing access to the broadest set of DC plan participants? The incentives don’t seem to be there. Participants, employers, target-date fund managers and DC recordkeepers all have limited incentives to change the status quo. Every layer of this system benefits from accumulating and retaining assets. Fund managers might have incentives to introduce new, potentially higher-returning or better-diversifying investment types, but they must navigate through multiple gatekeepers to reach investors who may never even look at their choices. And employers certainly won’t advocate for change.

The irony is rich: the system designed to democratize retirement savings has democratized not choosing at all.

Of course, some employees care deeply about DC plan investment options and will demand that their employers add choices for alternatives and crypto. We’re not worried about those folks — they will find a way — but they are in the minority. The fallacy lies in assuming that all young workers, or any demographic group, would uniformly embrace crypto access in their 401k plans. The reality is that most participants across all age groups operate on autopilot. If digital assets log more years as being among the highest performing asset classes, it will be a shame if the vast majority of 401k participants who make default elections won’t come along for the ride.