Trump endorses directive permitting utilization of alternatives such as Bitcoin and Private Equity in retirement plans of type 401(k)
In a significant move, U.S. President Donald Trump has signed an executive order allowing 401(k) plans to include higher-risk investments such as private equity and cryptocurrencies. This decision marks a major milestone in crypto's journey from niche investment to mainstream financial asset.
As of the end of March 2025, Americans held $12.2 trillion in all employer-based DC retirement plans, with $8.7 trillion in 401(k) plans. The shift could unlock billions of dollars in new capital inflows into the crypto market as millions of workers gain access to digital assets within their retirement plans.
Historically, 401(k) plans have been limited to conventional investments. However, this change signals a growing acceptance of digital assets as legitimate financial instruments. Veteran investment professional Benjamin Li, who has worked over two decades at Lion Global Investors, Mercer Investments, Fullerton Fund Management, and Sygnum, believes that this change reflects growing acceptance and a need for careful consideration of risks and regulation.
Employers may not necessarily be eager to switch out of their existing plans. Questions remain about how plan administrators will implement this change and manage the unique risks associated with cryptocurrencies. Regulatory guidance will be crucial to ensure investor protections while expanding the pool of qualified assets.
The potential for higher returns in private equity and cryptocurrencies comes at a higher cost. These assets are typically more risky compared to traditional stocks and bonds. According to Li, investing principles do not significantly differ across asset classes; key aspects pertaining to investment impetus, objective, and fiduciary duty remain unchanged.
The executive order highlights the intersection of politics, finance, and technology in the evolving digital economy. It aims to provide American workers greater freedom and opportunity to diversify their retirement portfolios beyond traditional stocks and bonds. Fidelity or Vanguard, among others, may need time to craft suitable plans to offer retirement savings products with a crypto component.
The approval of the first bitcoin ETF back in 2024, according to Yap, indicated that this change "really comes as no surprise." The directive could mainstream cryptocurrency within the largest retirement savings vehicle in the U.S., potentially revolutionising the retirement savings landscape.
){kind=link}