Authored by: FinTax
In the United States, tens of millions of salaried workers rely on 401(k) plans to plan for retirement. However, for a long time, the investment options within these plans have been highly conservative, making it difficult for alternative assets such as cryptocurrency and private equity to enter, thereby limiting participants' investment choices. In March 2026, the United States Department of Labor (DOL) released proposed rules that clarify that fiduciaries of individual account plans such as 401(k)s may include products containing alternative assets, such as crypto assets, private equity, and real estate, in their investment menus when selecting "designated investment alternatives" (DIAs), and establish a process-based safe harbor. Although the rule is still in the public comment phase, the text indicates that U.S. regulators are sending clearer signals regarding the evaluation criteria for alternative asset investment options, such as crypto assets.
Crypto assets have gradually achieved institutionalization and mainstream acceptance. If alternative assets like crypto assets are included in the investment list, it is expected to open the door for diversification in the retirement accounts of ordinary Americans; however, the introduction of alternative assets has also sparked discussions among the general public and market institutions about balancing risk control, innovation, and participant protection. This article will start with the background of the proposed rule, outline its core mechanisms and applicable situations, and interpret the proposed rule within the macro policy framework of the Trump administration regarding crypto assets to analyze its institutional significance and potential impacts.
1 Background of the Proposed Rule
The 401(k) plan is one of the primary retirement savings tools in the United States, named after Section 401(k) of the Internal Revenue Code of 1986. This plan allows employees to contribute their wages before taxes for savings, with employers typically matching a certain percentage of employee contributions. Employees can choose how to allocate these savings through an investment menu provided by the plan platform, such as stock funds, bond funds, etc. These contributions are placed in a separate trust account, completely separate from the employer's company assets, and are managed by the plan fiduciaries, usually the employers by default. The specific investment menu options are ultimately determined and approved by the plan fiduciaries, with third-party record-keeping institutions providing platform support, administrative services, and suggested options, while fiduciaries hold ultimate decision-making authority and legal responsibility. By the end of 2025, the asset scale of this plan had exceeded $10.1 trillion, accounting for the vast majority of similar retirement plans, covering approximately 70 million active participants, affecting over 100 million Americans in total.
As a major supplement to Social Security, the 401(k) plan is an important source of retirement income for American residents, making the selection of investment menu options critical for the accumulation of retirement wealth among participants, directly determining whether tens of millions of ordinary Americans can maximize and diversify their risk-adjusted returns in long-term savings. However, within the existing regulatory framework, the Employee Retirement Income Security Act of 1974 (ERISA) has set relatively strict prudential obligations for plan fiduciaries, requiring fiduciaries to perform their duties prudently, loyally, and diligently. The "prudent obligation" requires that “fiduciaries must act solely in the interest of plan participants and beneficiaries, and must do so with the care, skill, prudence, and diligence that a prudent man acting in a similar capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.” Due to the principle-based nature of the regulation and the lack of clear operational guidelines, fiduciaries often face significant uncertainty in fulfilling their compliance obligations.
If fiduciaries are found to have violated their prudent obligations, they may bear strict post-event liability, required to compensate for any plan losses caused by their breach of duties, 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 encompass investment gains that should have been realized but were not. Furthermore, if a fiduciary gains any improper benefits due to a breach of duty, they must return the related profits to the plan. In necessary cases, courts may impose equitable remedies, including restricting their continued role as fiduciaries or requiring correction of relevant investment arrangements. For example, in the case of Tussey v. ABB, Inc., the fiduciary was held liable for approximately $35 million due to breach of fiduciary duties. Against this backdrop, to avoid potential legal risks, fiduciaries typically adopt a more cautious or even conservative strategy in investment decision-making, tending to choose traditional asset classes with clearer risk structures, higher market acceptance, and established evaluation systems, such as traditional stocks and bonds; alternative assets like cryptocurrency and private equity have been almost excluded from investment menus due to high volatility, complex valuation mechanisms, and unclear regulatory expectations, limiting the opportunities for plan participants to gain diversified returns.
For the U.S. 401(k) system, the proposal from the Labor Department reflects a loosening of the conservative allocation model that has historically relied heavily on traditional assets in a market where crypto assets have gradually become mainstream; if the new rules are ultimately implemented, alternative investment products including crypto assets are expected to be included in investment menus, thus providing new options for asset allocation in retirement savings investments.
2 Core Mechanisms of the Proposed Rule
In the announcement text, the DOL's proposed rule retains the core requirement of the investment obligation rule regarding "appropriately considering relevant facts and acting accordingly," only providing a more operational judgment framework for the selection of "designated investment alternatives" (DIAs) in participant-directed individual account plans, clarifying how plan fiduciaries can fulfill their prudent obligations under ERISA Section 404(a)(1)(B) through a process-based safe harbor mechanism. This framework adheres to the principle of asset neutrality, imposing no bans or compulsory requirements on any specific asset class (including crypto assets), only requiring that the decision-making process must be objective, thorough, and analytical. The following will first detail the process-based safe harbor mechanism and then further discuss its specific regulatory path for including crypto assets as designated investment options.
2.1 Construction Standards and Elements of the Process-Based Safe Harbor Mechanism
A safe harbor typically refers to a provision under which an actor can be presumed to have fulfilled a legal obligation under certain conditions, thus reducing their legal uncertainty. In the proposed rule, the safe harbor is not expressed through a listing of "allowed or prohibited types of investments," but rather by establishing a set of judgment standards centered on the decision-making process, indirectly defining the compliance boundaries for fiduciaries in fulfilling their prudent obligations. Specifically, this means that when fiduciaries establish and maintain the investment menu for participant-directed individual account plans (plans designed and offered with a limited list of investment options by fiduciaries and allowing participants to direct the investment of assets in their accounts), they must conduct a necessary, objective, comprehensive, and analytical assessment of the six relevant factors listed for each designated investment option (designated investment alternative), and make corresponding judgments based on that assessment. These factors constitute the core analytical framework for fiduciaries to fulfill their prudent obligations, and on this basis, if fiduciaries conduct the required review and judgment of the relevant factors in accordance with the aforementioned procedures and can fulfill this procedural obligation in a reasonable manner, then their judgments regarding the related factors, including the weighing of the relationships among those factors, shall be presumed to meet the prudence obligations stipulated in ERISA Section 404(a)(1)(B) and receive significant deference in judicial review. In other words, as long as fiduciaries follow these procedural requirements, they can establish a "presumption of prudence," thereby reducing the risk of liability arising from poor investment results.
This mechanism is defined as a "process-based safe harbor" because it does not evaluate based on investment results or asset categories but emphasizes whether fiduciaries followed a reasonable, sufficient, and reviewable decision-making process when making investment choices. The proposed rule continues and strengthens the standard of prudent consideration established under Section 404(a)(1), stating that as long as fiduciaries, based on relevant facts and circumstances, conduct appropriate analysis and judgment, they can be considered to have fulfilled their prudent obligations. By further refining this standard, the proposed rule transforms it from an abstract principle to an operational framework, thus maintaining the intensity of prudent obligations while reducing the uncertainty inherent in its application process.
Specifically, the examination factors of the safe harbor include six aspects: investment performance (Performance), fees (Fees), liquidity (Liquidity), valuation (Valuation), performance benchmarks (Performance Benchmark), and complexity (Complexity). ① Investment performance (Performance). This factor requires plan fiduciaries to appropriately consider a reasonable number of similar alternatives and determine the "risk-adjusted expected returns" of the designated investment alternatives, which should promote achieving the plan’s objectives, helping participants and beneficiaries maximize risk-adjusted returns net of fees, within a suitable time frame. Here, return maximization does not require selecting the investment with the highest yield nor pursuing the highest possible return, but maximizing return at a specific risk level considered appropriate. The federal register explicitly states that choosing low-risk investment strategies with lower expected returns is often prudent. Additionally, the time frame for measuring investment performance is also a critical measure. The federal register notes that given the long-term nature of retirement investment plans, greater weight should be given to long-term historical performance than short-term performance, making long-term performance assessment a requirement for reasonably evaluating this factor.
② Fees (Fees). Fiduciaries must consider a reasonable number of similar alternatives and determine whether the fees and expenses of the designated investment alternatives are appropriate while taking into account their risk-adjusted expected returns and any other values brought by the designated investment alternatives to promote plan objectives. Here, "value" includes any benefits, features, or services apart from risk-adjusted returns. However, fiduciaries are not in violation of prudent obligations if they do not select the option with the lowest fees and expenses among considered alternatives, as a prudent plan fiduciary might choose to pay higher fees in exchange for better service. For instance, if they select the option with the highest fees among several alternatives, but that option also has the highest customer service and communication ratings, facilitating retirees' access to the plan, then the higher fees and expenses can be regarded as appropriate due to the increased value brought by enhanced customer service and communication. Moreover, factors such as share classes, lifetime income, risk mitigation strategies, and active management are also key considerations within the fee assessment.
③ Liquidity (Liquidity). Fiduciaries must prudently evaluate and confirm that the designated investment alternatives possess sufficient liquidity to meet expected demands at both the plan level and personal level. For example, since participant-directed individual account plans are essentially long-term retirement saving tools, fiduciaries are not required to select only those products that are fully liquid. A prudent decision-making process often leads to sacrificing some liquidity at the plan level or individual level in exchange for higher risk-adjusted returns. Specifically, participant-level liquidity needs to be considered, accounting for immediate liquidity demands that might arise from events such as retirement, service separation, or financial hardship, and ensuring that selected investment options have sufficient liquidity to meet those needs. At the plan level, short-term liquidity needs that might arise from events like plan termination, changes in recordkeepers or investment providers, or mergers and acquisitions of corporate sponsors need to be taken into account. It is noteworthy that when determining if investment alternatives possess adequate liquidity, it is necessary to balance their constraints against expected returns; if the expected returns of a specific product sufficiently compensate for the losses arising from its illiquidity, then allocating funds entirely to that illiquid product may also be viewed as a reasonable choice.
④ Valuation (Valuation). Fiduciaries must appropriately consider and determine that the designated investment alternatives have taken adequate measures to ensure timely and accurate valuations based on plan needs. For assets traded on public exchanges daily, fiduciaries can refer to exchange prices. For non-publicly traded assets, fiduciaries must review whether they have adhered to recognized valuation standards and ensure that the valuation processes are independent and free from significant conflicts of interest. If fiduciaries perform appropriate due diligence (such as reviewing financial statements or prospectuses) and find no suspicious information, they can be deemed to have fulfilled their prudent obligations; conversely, if investments involve complex related-party transactions and valuations dominated by related parties, then they fail to meet prudent requirements.
⑤ Performance benchmarks (Performance benchmark). Plan fiduciaries 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 to that meaningful benchmark. A "meaningful benchmark" refers to investments, strategies, indices, or other comparatives that have similar mandates, strategies, objectives, and risks as the designated investment alternatives. When selecting benchmarks, attention should be paid to the match on product strategy and risk, the availability of benchmarks, the construction or adoption of mixed benchmarks that reflect true holding proportions, and the possibility of employing independent experts to assist in constructing benchmarks.
⑥ Complexity (Complexity). Plan fiduciaries must prudently assess the complexity of the designated investment alternatives and confirm whether they possess sufficient skills, knowledge, experience, and abilities necessary to understand the alternatives in order to fulfill their obligations as set forth by ERISA; or determine whether they need to seek assistance from qualified investment advisers, investment managers, or other individuals. This standard establishes the due diligence criteria that fiduciaries must meet when facing complex investment products, primarily covering the dimensions of fee structures and service values. Regarding fees, for products that include private assets and complex incentive mechanisms, fiduciaries must fully understand their billing logic and confirm that they can deliver excess returns or negotiate to package fees as transparent fixed management fees; concerning services, for fully delegated managed accounts, fiduciaries must understand operational models and data requirements. If participants incur high fees due to insufficient awareness while receiving services that are barely distinguishable from less expensive alternatives, fiduciaries will be deemed to have failed in fulfilling their prudent obligations.
2.2 Regulatory Path for Including Assets as Designated Investment Options
Although the proposed rule does not set specific admission licenses or prohibitive provisions solely for crypto assets, this new regulation is widely interpreted as intending to loosen the restrictions on including crypto assets. First, the introductory remarks of the proposed rule explicitly state that the guidance on 401(k) plans issued during the Biden administration has been withdrawn. This guidance had warned fiduciaries to exercise extreme care when including cryptocurrency options and suggested that such investments might not comply with ERISA requirements. The withdrawal of this opinion alleviates the factual constraints originally formed based on liability risks. Second, the aforementioned process-based safe harbor mechanism significantly reduces the compliance uncertainty and potential liability risks faced by fiduciaries when including new asset types, thereby altering their risk-reward trade-off structure. This makes it so that although crypto assets are still constrained by unified prudent obligations at the regulatory level, they have shifted from being default restricted to "investment options that can be included under specific conditions."
Overall, under the aforementioned process-based safe harbor framework, crypto assets are not set with separate admission or prohibition rules but are integrated into a unified prudent review system; whether crypto assets can enter the investment menu largely depends not on their asset properties but on whether fiduciaries can prove the rationality and compliance of their decisions within the established analytical framework through the prudent judgments required by the safe harbor mechanism.
3 Continuation of Trump Administration's Crypto Policy in This Proposed Rule
From a macro perspective, this proposed rule is an institutional implementation of the Trump administration's policies on crypto assets in the retirement sector. On August 7, 2025, President Trump signed Executive Order EO 14330 “Democratizing Access to Alternative Assets for 401(k) Investors.” This executive order stated that every American preparing for retirement should have access to the risk-adjusted returns and diversification opportunities that alternative assets can provide, as deemed suitable by fiduciaries. "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 re-examine existing regulatory rules, clarify positions, and establish safe harbors to reduce regulatory burdens and litigation risks, allowing 401(k) participants to access the potential benefits of these assets on an equitable basis like institutional investors. The proposed rule is a specific execution of this executive order, officially introducing crypto assets and other emerging assets into the policy trajectory of the retirement system.
As 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 ERISA's prudent obligations but to clarify and supplement the existing regulatory framework. The provision 29 CFR §2550.404a-6 in the proposed rule is based on the Investment Duties (29 CFR Part 2550) 404a provision, providing fiduciaries with more operational guidance for selecting investment options.
4 Future Impacts of the Proposed Rule Implementation
The proposed rule is not merely a relaxation of admission restrictions for a certain type of asset; rather, it reconstructs the standards of prudent judgment for retirement plan fiduciaries through the safe harbor mechanism. Therefore, if this proposed rule is officially implemented, its impacts are expected to extend not only to the expansion of investment options but also to market supply, product standardization, institutional participation, and tax incentives.
4.1 Rule Implementation Will Result in Overall Momentum for the Crypto Asset Market
Should the proposed rule officially take effect, it would mark a shift in investment decision-making under the ERISA framework for retirement plans from potential factual restrictions based on asset categories to rigorous process-oriented prudent reviews, providing a clearer regulatory path for the inclusion of crypto assets in 401(k) plans. In terms of market size, the total assets of U.S. 401(k) plans and other defined contribution (DC) plans have exceeded $10 trillion, while the entire retirement asset market approaches $50 trillion. If, after the rule's implementation, crypto assets can pass the prudent review required by the process-based safe harbor, this will inject long-term, stable institutional capital demand into mainstream crypto assets such as Bitcoin and its related ecosystems. This not only increases long-term institutional capital inflow into crypto assets but also reduces dependency on single market cycles and retail speculation, lessening the impact of short-term price volatility through the encouragement of long-term holding.
Additionally, the implementation of the proposed rule will also advance the institutionalization and standardization processes of the crypto asset market. To meet the requirements of the process-based safe harbor mechanism, plan fiduciaries will need to conduct stringent evaluations of crypto-related products within a necessary, objective, and comprehensive review framework, which will drive product developers to offer more transparent fee structures, independent and conflict-free valuation mechanisms (in line with recognized accounting standards), meaningful performance benchmarks, and complexity solutions that are easy to understand and manage. These improvements will not only significantly enhance compliance and review standards for products but will also attract more qualified asset managers, professional custodial institutions, and investment advisors into the retirement planning sector, thus accelerating the mature development of crypto asset funds, ETF structured products, and the associated valuation, reporting, and risk management services.
4.2 Safe Harbor Mechanism Provides Compliance Path for Crypto Asset Investment
The safe harbor mechanism offers plan fiduciaries a clear and operational compliance path for including crypto assets as designated investment options. If fiduciaries conduct necessary, objective, comprehensive, and analytical evaluations of the six core factors of the safe harbor, and document their judgments for review, their related determinations can enjoy a "presumption of prudence" and receive significant respect in judicial review, thereby significantly reducing the litigation risks arising from investment result volatility. However, the characteristics of crypto assets—high volatility, 24/7 trading, non-traditional valuation models, technological complexity, and regulatory overlaps—still pose challenges for fiduciaries. They must invest more time, resources, and professional capabilities in conducting comprehensive documented analyses of the six factors to effectively obtain the protective status of the safe harbor presumption; if the procedural documentation is insufficient, the considerations are not thorough, or a reasonable number of comparable alternatives are not analyzed, courts may still review the substantive reasonableness, and the safe harbor protection may not be fully applicable.
4.3 Changes in 401(k) Portfolios Offer Tax Incentives for Investors
The core institutional arrangement of the U.S. retirement account system promotes long-term savings behavior through a tax deferral mechanism. Under the traditional framework, whether in 401(k) plans or individual retirement accounts (IRAs), a common feature is that investment returns can grow tax-deferred during the accumulation phase and are taxed upon distribution in qualifying events, thereby achieving a deferred allocation of tax burdens over time. Should the proposed rule allow crypto assets to be included in retirement investment portfolios through compliant investment channels, it means that returns related to crypto assets can also enter this tax deferral system, thereby obtaining the same institutional treatment as traditional asset categories on a tax processing level.
Within this institutional framework, the tax realization method for crypto asset investments will vary depending on investment channels. Within the current taxable account system, crypto asset transactions typically face high tax realisation frequencies and strong capital gains realization constraints, as short-term trading activities often directly trigger tax obligations; whereas within retirement accounts, the price fluctuations of crypto assets and portfolio adjustments usually do not immediately result in tax burdens. When investors engage in short-term buying and selling, they no longer frequently trigger tax obligations, thus diminishing the tax's suppression on short-term trading behaviors. This change makes crypto assets more comparable to traditional alternative assets regarding tax treatment in long-term accounts, enhancing their operational viability as long-term allocation targets.
However, this tax advantage primarily materializes at the investor level and does not necessarily translate into actual supply of crypto assets within retirement plans. Since the construction of 401(k) investment menus is led by fiduciaries, the inclusion of relevant assets still depends on whether sufficient rationale can be provided within the framework of prudent obligations. In this process, although tax deferral may enhance the willingness to allocate on the demand side, the supply side continues to face substantial constraints from the six prudent factors under the process-based safe harbor framework. Therefore, while crypto assets may have gained the potential to enter the retirement planning system at the institutional level, the extent of their ultimate inclusion remains uncertain. Furthermore, tax deferral does not necessarily enhance the overall attractiveness of crypto assets; rather, due to the long-term holding characteristics of retirement accounts and the uniform taxing arrangements during distribution phases, high-volatility assets lacking stable risk compensation mechanisms may find themselves at a disadvantage in comprehensive comparisons of "long-term, fees, and risk-adjusted returns." Thus, from a tax perspective, the loosening of rules has not granted crypto assets additional institutional advantages but has instead placed them in the same long-term post-tax return evaluation framework as other assets.
5 Conclusion
Overall, the proposed rule from the United States Department of Labor introduces a structural reshaping of the application of prudent obligations under the ERISA framework through the introduction of the process-based safe harbor mechanism. The core of this shift is the transformation of the originally result-oriented, highly uncertain principle-based standards into a compliance path centered on procedural review, with practical operation. Under the construction of the proposed rule, crypto assets face both institutional opportunities and more stringent compliance screenings. However, whether the rule can eventually be implemented and whether the text will see new adjustments after the public comment period remains to be seen; the ultimate degree to which crypto assets can achieve widespread allocation within the 401(k) system also depends on the maturity of market infrastructure, the standardization of product supply, and the ongoing enhancement of fiduciaries' professional capabilities.
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