Author: Chen Mo cmDeFi
On August 7, 2025, U.S. 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 the newly introduced crypto assets.
This policy is as straightforward to interpret as it appears.
Providing "national-level" endorsement for the crypto market sends a signal to promote the maturity of the crypto market.
Pensions expand diversified investments and returns but introduce higher volatility and risk.
In the crypto field, this is already enough to be recorded in history.
Looking at the development history of 401(k), a key turning point was the pension reform during the Great Depression that allowed stock investments. Despite differing historical and economic backgrounds, this change bears many similarities to the current trend of introducing crypto assets.
1/6 · The Pension System Before the Great Depression
From the early 20th century to the 1920s, pensions in the U.S. were primarily based on Defined Benefit Plans, where employers promised to provide employees with stable monthly pensions after retirement. This model originated from the industrialization process of the late 19th century, aimed at attracting and retaining labor.
During this stage, pension fund investment strategies were highly conservative. The mainstream view at the time held that pensions should pursue safety rather than high returns, limited by regulatory 'Legal Lists', and mainly confined to low-risk assets such as government bonds, high-quality corporate bonds, and municipal bonds.
This conservative strategy operated smoothly during periods of economic prosperity but also limited potential returns.
2/6 · The Shock 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. Unemployment soared to 25%, and countless businesses went bankrupt.
Although pension funds invested very little in stocks at that time, the crisis still hit them through indirect channels. Many employer businesses went bankrupt and could not fulfill their pension promises, leading to interruptions or reductions in pension payments.
This raised public doubt about the management capabilities of employers and government pensions, prompting federal intervention. In 1935, the Social Security Act was enacted, establishing a national pension system, but private and public pensions were still led by local initiatives.
Regulators emphasize that pensions should avoid 'gambling' assets such as stocks.
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The turning point began: the slow economic recovery after the crisis saw bond yields start to decline (partly due to federal tax expansion), laying the groundwork for subsequent changes. At this time, the situation of inadequate yields gradually became apparent, making it difficult to cover promised returns.
3/6 · Investment Shift and Controversy Post-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, including stocks. This transition was not smooth and was accompanied by intense controversy.
After the war, the economy recovered, but the municipal bond market stagnated, with yields dropping to a low of 1.2%, unable to meet the guaranteed returns of pensions. Public pensions faced 'deficit payment' pressures, increasing the burden on taxpayers.
At the same time, private trust funds began to adopt the 'Prudent Man Rule', a rule originating from 19th-century trust law, but reinterpreted in the 1940s to allow diversified investments for higher returns as long as overall 'prudence' was maintained. 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 pensions to invest up to 35% in equity assets (such as stocks). This marked a shift from 'Legal Lists' to flexible investments. Other states followed, such as North Carolina, which authorized corporate bond investments in 1957 and allowed a 10% stock allocation in 1961, increasing to 15% by 1964.
This change has sparked significant controversy. Opponents (mainly actuaries and unions) argue that investing in stocks repeats the mistakes of the 1929 stock market crash, placing retirement funds at risk of market volatility. Media and politicians have labeled it as "gambling with workers' hard-earned money", fearing pension collapse during economic downturns.
To ease the controversy, investment ratios were strictly limited (initially no more than 10-20%) and prioritized investments in 'blue-chip stocks'. In the subsequent period, benefiting from the post-war bull market, the controversy gradually faded, proving its return potential.
4/6 · Subsequent Developments and Institutionalization
By 1960, the proportion of public pensions in non-government securities exceeded 40%. The holding rate of New York City municipal bonds dropped from 32.3% in 1955 to 1.7% in 1966. This shift reduced the burden on taxpayers but also made pensions more reliant on the market.
In 1974, the Employee Retirement Income Security Act (ERISA) was enacted, applying the prudent investor standard to public pensions. Despite initial controversies, stock investments were ultimately accepted, but some issues were exposed, such as significant pension losses during the 2008 crisis, reigniting similar debates.
5/6 · Signal Release
The current introduction of crypto assets into 401(k) plans is highly similar to the previous introduction of stock investments, both involving a transition from conservative investments to high-risk assets. Clearly, the current maturity of crypto assets is much lower and their volatility is higher, which can be seen as a more radical pension reform, signaling various implications.
The promotion, regulation, and education of crypto assets will advance to a new level to help people accept these emerging assets and enhance their risk awareness.
From a market perspective, the inclusion of stocks in pension plans benefited from the long bull market in U.S. stocks. For crypto assets to replicate this path, they must also emerge from stable upward markets. Moreover, since 401(k) funds are effectively locked in,
Buying crypto assets for pensions is equivalent to 'hoarding coins', akin to another 'strategic reserve of crypto assets'.
No matter how it is interpreted, this is a huge benefit for Crypto.
The following is additional information; professionals can skip.
6/6 · Appendix - The Meaning and Mechanism of 401(k)
401(k) is an employer-sponsored retirement savings plan under Section 401(k) of the Internal Revenue Code, first introduced in 1978. It allows employees to deposit into personal retirement accounts using pre-tax (or post-tax, depending on the specific plan) wages for long-term savings and investments.
401(k) is a type of 'Defined Contribution Plan', different from the traditional 'Defined Benefit Plan'. The core lies in the joint contributions of employees and employers, with investment returns or losses borne by the employees individually.
6.1 Contributions
Employees can deduct a certain percentage from each paycheck as a 401(k) contribution, which is deposited into a personal account. Employers provide "matching contributions", which are additional funds based on a certain percentage of the employee's contributions, 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 invested in options preset by the employer's 'menu'. Common options include: S&P 500 index funds, bond funds, and mixed allocation funds. An executive order in 2025 allows the inclusion of private equity, real estate, and crypto assets.
Employees need to choose an investment portfolio from the menu or accept the default option. Employers only provide options and are not responsible for specific investments.
Entitlement of earnings: Investment returns fully belong to the employees and do not need to be shared with employers or others.
Risk-bearing: If the market declines, losses are borne by the employees themselves, without any safety net.
