In the United States, tens of millions of American workers individuals rely on 401(k) plans for retirement planning. However, for a long time, plan investment options have been highly conservative. Alternative assets such as cryptocurrencies and private equity have been difficult to include, limiting the investment choices available to participants. In March 2026, the United States Department of Labor (DOL) issued a proposed rule clarifying that fiduciaries of individual account plans, such as 401(k)s, may include products containing alternative assets like crypto assets, private equity, and real estate into the investment menu when selecting designated investment alternatives (DIAs), and would establish a process-based safe harbor. Although the rule is still in the public comment period, judging from the text, US regulators are sending clearer signals regarding the evaluation standards for alternative asset investment options, including crypto assets.
Crypto assets have gradually achieved institutionalization and mainstream acceptance. If alternative assets such as crypto assets are included in the investment lineup, it is expected to open the door to diversification for the retirement accounts of ordinary Americans. However, the introduction of alternative assets has also sparked discussions among the general public and market institutions regarding the balance between risk control, innovation, and participant protection. Starting from the background of this proposed rule, this article will outline its core mechanisms and applicable scenarios, contextualize the proposed rule within the macro policy framework of the Trump administration regarding crypto assets to understand its institutional significance, and analyze its potential impact.
The 401(k) plan is one of the primary retirement savings vehicles in the United States, named after Section 401(k) of the Internal Revenue Code of 1986. This plan allows employees to make pre-tax salary deferral contribution, and employers typically provide matching funds based on a certain percentage of the employee's contributions. For these savings, employees can independently choose their allocations from the investment menu provided by the plan platform, such as equity funds and bond funds. These contributed funds are deposited in an independent trust account, completely separated from the employer's corporate assets, and managed by the plan fiduciary, which defaults to the employer in most cases. The specific options on the investment menu are ultimately determined and approved by the plan fiduciary. Third-party recordkeepers provide platform support, administrative services, and suggested options, while the fiduciary holds the final decision-making authority and assumes legal responsibility. As of the end of 2025, assets in 401(k) plans have exceeded 10.1 trillion US dollars, accounting for the vast majority of similar retirement plans, covering approximately 70 million active participants and affecting more than 100 million Americans in total.
As a major supplement to social security, the 401(k) plan is a crucial source of retirement income for US residents. Therefore, the selection of the investment menu is vital to the accumulation of retirement wealth for plan participants, directly determining whether tens of millions of ordinary Americans can achieve maximization and diversification of risk-adjusted returns in their long-term savings. However, under the existing regulatory framework, the Employee Retirement Income Security Act of 1974 (ERISA) imposes relatively strict fiduciary duties on plan fiduciaries, requiring them to discharge their duties in a prudent, loyal, and diligent manner. Among these, the duty of prudence requires that a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. Because this regulation is largely principle-based and lacks clear operational guidelines, fiduciaries often face significant uncertainty when practically fulfilling their compliance obligations.
If a fiduciary is found to have breached the duty of prudence, they may bear strict ex-post liability and must compensate for the plan's losses caused by their breach, effectively restoring the plan to the state it would have been in had the breach not occurred. This includes not only actual losses but may also cover unrealized investment returns that should have been earned. Furthermore, if the fiduciary gains any improper benefits through the breach of duty, they must return the relevant profits to the plan. Where necessary, courts may also impose equitable relief measures, including restricting them from continuing to serve as a fiduciary or requiring the correction of relevant investment arrangements. For example, in the case of Tussey v. ABB, Inc., the fiduciaries were held liable for approximately 35 million US dollars in damages for breaching their fiduciary duties. In this context, to avoid potential legal risks, fiduciaries typically adopt more cautious and even conservative strategies in their investment decisions. They tend to choose traditional asset classes with clearer risk structures, higher market acceptance, and mature evaluation systems, such as traditional stocks and bonds. Alternative assets like cryptocurrencies and private equity are almost entirely excluded from the investment menu due to factors such as their high volatility, complex valuation mechanisms, and unclear regulatory expectations, thereby limiting the opportunities for plan participants to obtain diversified returns.
For the US 401(k) system, the proposal of the DOL's proposed rule reflects that the conservative allocation model, which relies heavily on traditional assets, is beginning to loosen against the market backdrop of crypto assets gradually becoming mainstream. If the new rule is ultimately finalized, alternative investment products, including crypto assets, are expected to be included in the investment menu in the future, thereby providing new options for asset allocation in retirement savings investments.
In the text of the announcement, the DOL's proposed rule retains the core requirement of the Investment Duties regulation regarding appropriate consideration of relevant facts and acting accordingly. It solely provides a more operational judgment framework for the selection process of designated investment alternatives (DIAs) in participant-directed individual account plans, clarifying how plan fiduciaries can fulfill the duty of prudence under ERISA Section 404(a)(1)(B) through a process-based safe harbor mechanism. This framework adheres to the principle of asset neutrality and does not establish bans or mandatory requirements for any specific asset class, including crypto assets. It only requires that the decision-making process must be objective, thorough, and analytical. The following will first elaborate on the process-based safe harbor mechanism in detail, and then further discuss its specific regulatory path for the inclusion of crypto assets into designated investment options.
A safe harbor typically refers to a situation where, upon meeting specific conditions, an actor can be presumed to be in compliance with a certain legal obligation, thereby reducing their legal uncertainty. In the proposed rule, the safe harbor is not manifested by listing permitted or prohibited types of investments. Instead, it indirectly defines the compliance boundaries for fiduciaries fulfilling their duty of prudence by establishing a set of judgment standards centered on the decision-making process. Specifically, it means that when a fiduciary establishes and maintains an investment menu for a participant-directed individual account plan (a plan type where the plan fiduciary is responsible for designing and providing a limited list of investment options, and allowing participants to direct the investment of assets in their accounts), they must conduct a necessary objective, thorough, and analytical analysis of the six listed relevant factors for each designated investment alternative, and make corresponding judgments based on this. The aforementioned factors constitute the core analytical framework for the fiduciary's performance of the duty of prudence. On this basis, if the fiduciary conducts compliant reviews and judgments on the relevant factors in accordance with the aforementioned procedures, and can reasonably fulfill this process-based obligation, then their judgments regarding the relevant factors, including the weighing of the relationships among the factors, will be presumed to comply with the duty of prudence stipulated in ERISA Section 404(a)(1)(B), and will receive significant deference in judicial review. In other words, as long as the fiduciary follows such procedural requirements, a presumption of prudence can be established, thereby reducing the risk of liability claims claims arising from poor investment outcomes.
This mechanism is defined as a process-based safe harbor because it does not evaluate based on investment results or asset classes as the core. Rather, it emphasizes whether the fiduciary has followed a reasonable, sufficient, and reviewable decision-making process when making investment selections. The rationale of the proposed rule continues and reinforces the appropriate consideration standard established by Section 404(a)(1), which implies that as long as the fiduciary conducts appropriate analysis and judgment based on relevant facts and circumstances, they can be deemed to have fulfilled the duty of prudence. By further refining this standard, the proposed rule transforms it from an abstract principle into an operational framework, thereby reducing the uncertainty in its application process while maintaining the intensity of the duty of prudence.
Specifically, the examination factors of the safe harbor include six aspects: Performance, Fees, Liquidity, Valuation, Performance Benchmark, and Complexity.
① Performance. This factor requires that the plan fiduciary must appropriately consider a reasonable number of similar alternatives, and determine that the risk-adjusted expected returns of the designated investment alternative, after deducting anticipated fees and expenses over an appropriate time horizon, can promote the realization of the plan's objectives. That is, it helps participants and beneficiaries achieve the maximization of risk-adjusted returns net of fees. The maximization of returns here does not mandate choosing the investment with the absolute highest returns, nor does it require pursuing the highest possible returns; rather, it refers to the maximization of returns at an appropriately specified risk level. The Federal Register also clearly states that choosing a lower-risk investment strategy with lower expected returns is often a prudent move. In addition, the time horizon used to measure investment performance is also an important evaluative factor. The Federal Register points out that, given the long-term nature of retirement investment plans, it is often more prudent to assign greater weight to long-term historical performance compared to short-term results. Examining performance over a long-term time horizon is a requirement for reasonably measuring the element of investment performance.
② Fees. The plan fiduciary must consider a reasonable number of similar alternatives and determine that the fees and expenses of the designated investment alternative are appropriate, while taking into account its risk-adjusted expected returns and any other value brought by the designated investment alternative to promote the purposes of the plan. Here, the term value includes any benefits, features, or services other than risk-adjusted returns. However, it is not a breach of the duty of prudence if the fiduciary does not select the option with the lowest fees and expenses from the considered alternatives, because a prudent plan fiduciary may choose to pay higher fees in exchange for better services. For instance, if a plan fiduciary selects the option with the highest fees among several alternatives, but it also has the highest ratings for customer service and communication, making it easier for retirees to access and understand the plan, the higher fees and expenses can be considered appropriate based on the value brought by the enhanced customer service and communication. In addition, Share classes, Lifetime income, Risk mitigation strategies, and Active management are also key components that need to be measured and considered within the fee factor.
③ Liquidity. The fiduciary must prudently assess and confirm that the designated investment alternative possesses sufficient liquidity to meet anticipated needs at both the plan level and the individual level. For example, because participant-directed individual account plans are inherently long-term retirement savings tools, fiduciaries are not required to exclusively select products with full liquidity. A prudent fiduciary decision-making process will often lead to a decision to sacrifice a portion of liquidity at the plan or individual level in exchange for higher risk-adjusted returns. Specifically, liquidity at both the participant level and the plan level needs to be considered. At the participant level, it is necessary to consider the immediate liquidity needs that may be caused by events such as retirement, separation from service, and financial hardship, and ensure that the selected investment options have sufficient liquidity to meet these needs. At the plan level, it is necessary to consider the short-term liquidity needs that may arise from situations such as plan termination, changing recordkeepers or investment providers, as well as corporate sponsor mergers and acquisitions. It is worth noting that when determining whether an investment alternative has sufficient liquidity, it is necessary to balance the relationship between its restrictions and its expected returns. If the expected return of a product is sufficient to compensate for the losses caused by its restrictiveness, then fully allocating funds to this illiquid product may also be considered a reasonable choice.
④ Valuation. The fiduciary must appropriately consider and determine that the designated investment alternative has taken adequate measures to ensure that the alternative can be valued in a timely and accurate manner according to the needs of the plan. For assets traded daily on public exchanges, the fiduciary may refer to exchange prices. For non-publicly traded assets, the fiduciary needs to examine whether they follow generally accepted valuation principles and ensure that the valuation process is independent and free of material conflicts of interest. If the fiduciary performs appropriate due diligence (such as reviewing financial statements and prospectuses) and finds no suspicious information, they can be deemed to have fulfilled the duty of prudence. Conversely, if the investment involves complex related-party transactions and the valuation is dominated by related parties, the prudence requirement cannot be met.
⑤ Performance benchmark. The plan fiduciary must appropriately consider and determine that each designated investment alternative has a meaningful benchmark, and compare the risk-adjusted expected returns of the designated investment alternative against this meaningful benchmark. A meaningful benchmark refers to an investment, strategy, index, or other comparator that has a similar mandate, strategy, objective, and risk to the designated investment alternative. When selecting a benchmark, attention should be paid to the degree of matching in product strategy and risk, the availability of the benchmark, the construction or adoption of a blended benchmark reflecting true holding proportions, and the possibility of hiring independent experts to assist in constructing the benchmark.
⑥ Complexity. The plan fiduciary must prudently consider the level of complexity of the designated investment alternative and confirm whether they possess the skills, knowledge, experience, and capabilities necessary to fully understand the alternative in order to fulfill the obligations stipulated by ERISA; or confirm whether there is a need to seek the assistance of a qualified investment advice fiduciary, investment manager, or other individuals. This standard stipulates the due diligence criteria that fiduciaries must meet when facing complex investment products, mainly covering two dimensions: fee structure and service value. In terms of fees, for products involving private assets and complex incentive mechanisms, the fiduciary must thoroughly understand their fee mechanics and confirm that they can bring excess returns, or negotiate to bundle the fees into a transparent fixed management fee. In terms of services, regarding fully discretionary managed accounts, the fiduciary must understand their operational models and data requirements. If an insufficient understanding leads to participants paying exorbitant fees while receiving inefficient services indistinguishable from cheap alternatives, the fiduciary will be deemed to have failed to fulfill their duty of prudence.
Although the proposed rule does not establish separate approval or prohibition rules specifically for crypto assets, this new rule is widely interpreted as a proposal to relax the restrictions on the inclusion of crypto assets. First, the preamble of the proposed rule explicitly mentions that the guidance on 401(k) plans issued during the Biden administration has been withdrawn. That guidance previously warned fiduciaries to exercise extreme care when including cryptocurrency options and implied that such investments might be inconsistent with ERISA requirements. The withdrawal of this guidance removes the previous de facto restrictions formed on the basis of liability risks. Second, the aforementioned process-based safe harbor mechanism significantly reduces the compliance uncertainty and potential liability risks faced by fiduciaries when including novel assets, thereby altering their risk-return trade-off structure. This means that while crypto assets are still subject to the unified duty of prudence at the regulatory level, they have shifted from being restricted by default previously to becoming investment options that can be included under specific conditions.
Overall, under the aforementioned process-based safe harbor framework, crypto assets have not been subject to separate admission or prohibition rules, but are rather incorporated into a unified prudential review system. Whether crypto assets can enter the investment menu hinges not on their asset attributes themselves, but on whether the fiduciary can prove the rationality and compliance of their decision within the established analytical framework, passing the prudential judgment required by the safe harbor mechanism.
From a broader policy perspective, this proposed rule represents the institutional implementation of the Trump administration's policy on crypto assets in the retirement sector. On August 7, 2025, President Trump signed Executive Order 14330, Democratizing Access to Alternative Assets for 401(k) Investors. The executive order states that every American preparing for retirement should, when deemed appropriate by fiduciaries, have access to the enhanced risk-adjusted returns and diversification opportunities brought by alternative assets. Among these, alternative assets include broad categories such as Private market investments, Real estate, and Actively managed investment vehicles investing in digital assets. The executive order requires the DOL to review existing regulatory rules, and through clarifying stances and establishing safe harbors, reduce the regulatory burden and litigation risks, thereby allowing 401(k) participants to equitably access the potential returns of these assets just like institutional investors. The proposed rule is exactly the specific execution of this executive order, formally bringing emerging assets like crypto assets onto the policy track of the retirement system.
As a part of the Trump administration's crypto policy, the task of this proposed rule is not to completely eliminate or create entirely new mandatory requirements outside of the ERISA duty of prudence, but rather to clarify and supplement the existing regulatory framework. Section 29 CFR 2550.404a-6 in the proposed rule is based on Section 404a of the Investment Duties regulation (29 CFR Part 2550), providing more operational guidelines for fiduciaries to select investment options.
The proposed rule is not simply relaxing the admission restrictions on a certain class of assets, but reconstructing the prudential judgment standards for retirement plan fiduciaries through a safe harbor mechanism. Therefore, if the proposed rule is ultimately finalized, its impact is expected to manifest not only in the expansion of investment options but also potentially extend to multiple dimensions such as market supply, product standardization, institutional participation, and tax incentives.
If the proposed rule is finalized, it will mark the shift in retirement plan investment decisions under the ERISA framework from potential de facto restrictions on asset classes to rigorous process-oriented prudential review, providing a clearer regulatory path for the inclusion of crypto assets into 401(k) plans. Looking at the market scale, the total assets of US 401(k) and other defined contribution (DC) plans have exceeded 10 trillion US dollars, and the entire retirement asset market is approaching 50 trillion US dollars. If, after the rule is finalized, crypto assets can satisfy the safe-harbor prudence review, it will inject long-term, stable institutional capital demand into mainstream crypto assets such as Bitcoin and related ecosystems. This will not only increase the long-term inflow of institutional funds into crypto assets, reducing their reliance on single market cycles and retail speculation, but also diminish the impact of short-term price fluctuations by encouraging long-term holding.
Furthermore, the finalization of the proposed rule will also propel the institutionalization and standardization process of the crypto asset market. To meet the requirements of the process-based safe harbor mechanism, plan fiduciaries need to conduct strict evaluations of crypto-related products within a necessary, objective, and thorough review framework. This will drive product developers to provide more transparent fee structures, independent valuation mechanisms free of conflicts of interest (compliant with Generally Accepted Accounting Principles), meaningful performance benchmarks, and approaches for managing complexity that are easy to understand and manage. The aforementioned improvements will not only significantly elevate the compliance and review standards of the products but will also attract more qualified asset managers, professional custodians, and investment advisors to actively enter the retirement plan sector, thereby accelerating the mature development of crypto asset funds, ETF structured products, as well as supporting valuation, reporting, and risk management services.
The safe harbor mechanism provides a clear, operational compliance path for plan fiduciaries to include crypto assets into designated investment options. If a fiduciary conducts a necessary, objective, thorough, and analytical evaluation of the six core factors of the safe harbor, and creates reviewable documented records, their relevant judgments can gain a presumption of prudence and reasonableness and enjoy significant deference in judicial review, thereby substantially lowering the litigation risks triggered by investment result fluctuations. However, the characteristics of crypto assets—such as high volatility, 24/7 trading, non-traditional valuation models, technical complexity, and overlapping regulatory agencies—still pose challenges to fiduciaries. Fiduciaries must invest more time, resources, and professional expertise to conduct comprehensive documented analyses of the six factors to effectively obtain the prudential presumption protection of the safe harbor. If the process documentation is insufficient, the consideration is not thorough enough, or a reasonable number of similar alternatives is not compared, the court may still examine its substantive reasonableness, and the safe harbor protection will not be fully applicable.
The core institutional arrangement of the US retirement account system lies in incentivizing long-term savings behavior through the mechanism of tax deferral. Under the traditional framework, a common feature of both 401(k) plans and Individual Retirement Accounts (IRAs) is that they allow investment returns to grow tax-deferred during the accumulation phase, and to be taxed only during the qualified distribution phase, thereby realizing the deferred allocation of the tax burden on a temporal dimension. If the proposed rule allows crypto assets to be included in retirement investment portfolios through compliant investment channels, it means that crypto asset-related returns can also enter the aforementioned tax deferral system, thereby obtaining the same institutional treatment as traditional asset classes at the level of tax handling.
Under this institutional arrangement, the realization method of the tax burden for crypto asset investments will change depending on the investment channels. In the current taxable account system, crypto asset transactions typically face a higher frequency of tax realization and stronger constraints on capital gains realization, where short-term trading behaviors often directly trigger tax obligations. However, within the retirement account framework, the price fluctuations and portfolio adjustments of crypto assets usually do not immediately generate tax liabilities. When investors engage in short-term buying and selling, they no longer frequently trigger tax obligations, thus weakening the suppressive effect of taxation on short-term trading behaviors. This change brings crypto assets closer to the tax handling logic of traditional alternative assets in long-term accounts at the portfolio allocation level, thereby enhancing their operability as long-term allocation targets.
However, this tax advantage is primarily manifested at the investor level and does not inevitably translate into the actual supply of crypto assets in retirement plans. Since the construction of the 401(k) investment menu is led by fiduciaries, whether relevant assets are included still depends on whether a sufficient demonstration can be completed within the framework of the duty of prudence. During this process, although tax deferral may elevate the allocation willingness on the demand side, the supply side remains constrained substantively by the six prudential elements under the process-based safe harbor framework. Therefore, while crypto assets have obtained the possibility of entering the retirement plan system at the institutional level, their ultimate degree of inclusion still holds uncertainty. Furthermore, tax deferral does not necessarily enhance the overall attractiveness of crypto assets. On the contrary, due to the long-term holding nature of retirement accounts and the institutional arrangement of unified taxation during the distribution phase, assets that are highly volatile and lack stable risk compensation mechanisms may be at a disadvantage in a comprehensive comparison of long term, fees, and risk-adjusted returns. Therefore, from a tax perspective, the relaxation of the rules has not endowed crypto assets with additional institutional advantages, but rather has incorporated them into the same long-term after-tax return evaluation framework as other assets.
Overall, by introducing a process-based safe harbor mechanism, the proposed rule of the US DOL structurally reshapes the application method of the duty of prudence under the ERISA framework. The core of this transition is to transform a principled standard—which was originally oriented toward outcome liability and had high uncertainty—into an operational compliance path centered on process review. Under the construction of the proposed rule, crypto assets face both institutional opportunities and more stringent compliance screening. However, whether the rule will ultimately be finalized, and whether new adjustments will appear in the text after the conclusion of the public comment period, remains to be seen. Whether crypto assets can ultimately achieve broad allocation within the 401(k) system also depends on the maturity of market infrastructure, the standardization of product supply, and the continuous enhancement of the professional capabilities of fiduciaries.
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