Regulators Open Retirement Doors to Crypto—With a Fiduciary Safety Net

The recent executive order from President Donald Trump has set in motion significant changes for retirement savers in the U.S. as it seeks to expand access to alternative assets, including cryptocurrency, within 401(k) plans. The executive order titled "Democratizing Access to Alternative Assets for 401(k) Investors" aims to enhance net risk-adjusted returns for over 90 million defined contribution plan participants by broadening the scope of available investment options. The order mandates that the Department of Labor, the Securities and Exchange Commission, and the Secretary of the Treasury modernize fiduciary regulations to facilitate the inclusion of six types of alternative assets, including digital assets, into retirement plans within six months [2].

One key aspect of the order is the emphasis on "actively managed investment vehicles" that are investing in digital assets. This phrasing is intentional, as it indicates that access to digital assets will not be direct but rather through professionally managed funds such as mutual funds, Collective Investment Trusts (CITs), and registered interval funds. This approach is designed to exclude single-asset, pure-beta crypto products and instead prioritize strategies with manager oversight and due diligence [2]. The focus on actively managed vehicles aims to reinforce fiduciary oversight by favoring curated, risk-managed portfolios over raw exposure, thereby emphasizing risk-adjusted returns in retirement portfolios [2].

The regulatory trail leading to this executive order began in 2020 when the Department of Labor issued an information letter permitting the inclusion of private equity in asset allocation funds for defined contribution plans on a limited basis. The current order expands this initiative to a much broader set of alternative strategies, aiming to bring the potential diversification and return benefits of institutional investing into the defined contribution world. However, this expansion is conditional upon the preservation of fiduciary protections, ensuring that any inclusion of alternative assets is done with rigorous oversight [2].

The inclusion of digital assets in retirement plans presents both opportunities and challenges. On one hand, it offers the potential for higher returns and diversification, as alternative assets often move independently of traditional stocks and bonds. On the other hand, the inherent volatility and illiquidity of these assets pose significant risks. For example, cryptocurrency can experience double-digit percentage losses in a single day, and private equity funds may hold funds for nearly a decade [7]. Moreover, the valuation challenges associated with private companies, which are not traded on public markets, add another layer of complexity to these investments [7].

To address these challenges, the executive order tasks regulators with providing safe harbors for fiduciaries acting in good faith. This is particularly important in the context of crypto, where transparency around strategy, custody, liquidity, and valuation is essential. Additionally, the DOL must issue guidance on when higher fees can be justified, especially when balanced against the potential for broader diversification and better net returns. This shift from a focus on cost to one on value could encourage more thoughtful innovation in plan design, although it also necessitates rigorous risk oversight consistent with fiduciary duty [2].

The regulatory landscape for alternative assets is still evolving, and the inclusion of these investments in retirement plans will depend heavily on the development of appropriate frameworks. Industry groups have already taken steps to facilitate this process by urging the Department of Labor to release sub-regulatory guidance for plan fiduciaries considering the inclusion of private and other alternative investments in defined contribution plans. This guidance is seen as a necessary bridge to provide clarity and reduce legal uncertainty, enabling fiduciaries to begin developing participant-ready solutions more quickly [6].

As the Department of Labor works to implement the executive order, the focus will be on ensuring that the inclusion of alternative assets in retirement plans is done in a manner that prioritizes participant interests and maintains the integrity of the retirement system. This includes addressing operational risks such as custody, compliance, and liquidity during periods of market stress [5]. The ultimate goal is to transform retirement investing by leveraging the potential of alternative assets while maintaining the principles of prudence and fiduciary responsibility.

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