On August 7, the White House announced an executive order mandating the Labor Department to expedite access to alternative investments for employer-sponsored defined contribution (DC) retirement plans, including 401k plans. This order aims to incorporate alternative investments like private market ventures, real estate, commodities, infrastructure projects, and particularly, digital assets in actively managed funds.
The crypto sector, especially asset management firms, welcomed this decision, recognizing access to a vast $12 trillion pool of US investment capital. Matt Hougan from Bitwise stated, “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.”
Nevertheless, a significant hurdle persists: many 401k participants do not make informed decisions about their investments. The Pension Protection Act of 2006 mitigated employer liability by allowing default investment selections, typically less effective target-date funds, thereby hindering proactive investment choices.
Recent findings from Vanguard indicate that the vast majority of participants opt for these defaults, with a striking 84% utilizing target-date funds. Moreover, most assumptions lead to inaction, as evidenced by a vast majority retaining a singular target-date fund for years.
In contention arises the question of incorporating digital asset strategies within target-date funds. Currently, various stakeholders—including participants, employers, and fund managers—hold limitations on incentivizing change, perpetuating the cycle of inactivity.
Some participants are passionate about their retirement options and will advocate for the inclusion of crypto investments, yet they remain a minority. The real concern lies in the autopilot mentality of most employees concerning their 401ks. As the digital asset class continues to perform, those missing out on potential gains due to default settings could face an unfortunate reality.
