An executive order could open the way for 401(k) plans to include alternative investments such as cryptocurrency. The August 7 order gave the Secretary of Labor 180 days, until February 3, 2026, to clarify rules for alternative assets under the Employee Retirement Income Security Act (ERISA). ERISA imposes a fiduciary duty on employers to ensure plan investments are prudent and that fees are not onerous. Gen X investors may appear well suited to crypto because of tech savvy and imminent retirements, and crypto proponents promise quick financial boosts. Cryptocurrency, like private equity, is characterized as inappropriate for defined-contribution plans because of complexity, elevated risk, and potential fee and prudence problems. The Department of Labor review will determine how ERISA obligations apply to crypto in 401(k)s.
Crypto might seem like a perfect opportunity for Gen X investors. This generation has the kind of tech savvy that comes from learning to use new digital tools as they're invented, making them much more likely to understand and appropriately invest in cryptocurrency. The timing also feels ideal, since Gen X retirements are on the horizon, and crypto enthusiasts promise this investment can provide quick financial boosts.
But unlike chocolate and peanut butter, getting cryptocurrency in your 401(k) is unlikely to be two great tastes that taste great together. In fact, crypto, like private equity, doesn't belong in a 401(k) or other defined-contribution plan-and not just because no one can satisfactorily explain what the heck a blockchain is. Here's what you need to know about the very real hazards of inviting cryptocurrency into your 401(k).
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