Jessy, Golden Finance. On Thursday, Trump issued an executive order promoting 401(k) and other retirement plans to invest in alternative assets, including private equity and cryptocurrencies. Currently, 401(k) plans manage $9 trillion in assets, with over 90 million individuals using them. Previously, these plans primarily invested in low-risk assets such as Treasury bonds and mutual funds. Market estimates suggest that if 401(k) plans allocated just 2% of their assets to cryptocurrencies, it would represent approximately $170 billion in new capital inflows—equivalent to two-thirds of the market capitalization of existing crypto spot ETFs and listed reserves. Meanwhile, China's Supreme People's Court issued a judicial interpretation on August 1st, clarifying that any private agreement between employees and employers not to contribute to social security contributions is invalid. Effective September 1st, the new regulations will be enforced, holding employers accountable and fining those who evade contributions. While China and the United States have different policy directions, both are aimed at addressing pressure on their pension systems. Below, Golden Finance analyzes in detail the background behind the inclusion of alternative assets in US 401(k)s and their potential impact on the crypto industry. It also compares the differing approaches of China and the US in addressing the pension crisis. The US Pension Dilemma: Why Does the 401(k) Need Alternative Assets? While Social Security (federal retirement benefits) is the foundation of the US retirement security system, it generally only covers basic living expenses. Many middle-class families rely on supplementary pension plans like 401(k)s to support their retirement. A 401(k) is a long-term retirement savings account established by US employers for their employees, offering tax advantages. Employees can invest a portion of their salary tax-free, then withdraw it upon retirement. Employers prepare a list of investments (typically 20-30 funds), and employees decide how much of their salary to contribute (e.g., 6%), then select funds from the list and allocate the appropriate percentage. Salary deductions are automatically made, and employers often even top up the contribution—for example, matching half of the employee's contribution as a benefit. The 401(k) plan, an employer-provided individual account plan with voluntary employee contributions and tax-deferred benefits, was once considered a crucial means for individuals to independently accumulate retirement wealth. However, the reality is worrying. A recent survey shows that due to factors such as inflation and rising medical costs, only about a third of 401(k) participants still believe they can achieve their retirement goals, down from 43% last year. Meanwhile, state and local public pension plans generally face trillions of dollars in outstanding contributions. For example, state pension systems have pledged a cumulative $6.3 trillion in pension payments, but actual assets are only $4.9 trillion, a shortfall of nearly $1.4 trillion. Against this backdrop, Trump's logic behind promoting the introduction of alternative assets becomes clearer: in an environment of low interest rates and inflationary pressures, traditional investments struggle to generate significant capital gains, forcing a shift in policy toward "higher-return assets." While riskier, alternative assets (such as private equity, real estate, and cryptocurrencies) are attracting a growing number of pension fund managers due to their potential returns and ability to diversify asset correlations. For example, the California Public Employees' Retirement System (CalPERS) plans to invest over $30 billion in private markets, and the current allocation of public pension funds to alternative assets has increased from 14% in 2001 to nearly 40% in 2021. Supporters of the policy see it as a "democratized financial opportunity" by removing regulatory barriers through executive orders, allowing 401(k) participants to choose from a wider range of assets with potentially higher returns. Money won't flow immediately into crypto assets. Previously, crypto assets weren't included in 401(k) investment lists; this policy opens the door for the first time. Some believe that if even 2% of 401(k) funds were to be allocated, the crypto market would immediately see an additional $170 billion—roughly equivalent to two-thirds of the total market capitalization of existing crypto spot ETFs and listed reserves. However, this money won't flow into the crypto market immediately. It's expected to take at least six to two years to fully materialize. First, the Department of Labor will issue detailed regulations clarifying how 401(k)s should invest in alternative assets, including percentage limits and product disclosures. Service providers will then design compliant fund products to include crypto assets. Ultimately, employers will decide whether to add these new funds to their investment portfolios, and employees will then decide whether to allocate to them. Therefore, various crypto spot ETFs have the highest likelihood of inclusion in this process due to their regulatory oversight and high liquidity. However, critics of this policy have also raised concerns, arguing that most alternative assets suffer from poor liquidity, high fees, low transparency, difficulty in valuation, and slow market exits, potentially posing greater systemic risks, especially during economic downturns, as investors face difficulties in withdrawing their funds. Furthermore, whether the fiduciary duty assessment standards within the regulatory framework can effectively protect ordinary investors has become a point of current public debate. Both China and the United States have "three pillars" for their pension systems, but their structures and stages of development differ significantly. The pension issue is a common dilemma facing the world. When the United States announced the inclusion of alternative assets in 401(k) plans, China also adjusted its social security policies. On August 1st, the Supreme People's Court issued a judicial interpretation, explicitly invalidating any "private agreements" regarding social security contributions. Effective September 1st, employers who violate these agreements will be held strictly accountable. This not only provides institutional protection for individual rights but also ensures a stable inflow of pension resources from the source. China's pension system adopts a government-led, coordinated structure, with the state establishing a fund pool through mandatory contributions and centrally managing and disbursing funds. Faced with challenges such as an aging population and local fiscal pressures, "expanding funding sources" has become a key measure. The policy introduced by China has a clear purpose: to address system loopholes through legal enforcement, ensure a genuine and sufficient contribution base, and thereby increase the size of the fund pool to address potential demographic challenges. Both the US and China adopt a "three-pillar" pension model, with the government, enterprises, and individuals jointly responsible for the pension system: a government-led mandatory pension, supplementary pensions provided by enterprises to their employees, and personal pensions. However, there are significant differences in the funding scale of these three pillars between the two countries. In the US, the second and third pillars (401(k)s and IRAs) are enormous and serve as a significant source of capital for the capital market. In China, the first pillar is the largest, while the second and third pillars are relatively small. Furthermore, in the US, individuals generally have greater investment options within the second and third pillars, determining their portfolios and making them the primary source of retirement income for most people. However, in China, individual investment autonomy is relatively limited, especially in enterprise annuities.
Perhaps it is precisely because of the different proportions of funds and their different stages of development that China and the United States have adopted different policy directions in addressing the pension crisis: Trump seeks to increase individual autonomy and scope in the third pillar, while China seeks to ensure the stability of the first pillar's funding pool.
Similarly, compared to the United States' reliance on market-based income incentives, China is more focused on the stability and sustainability of its security system. This also reflects the differences in the two countries' institutional foundations: China emphasizes social security and fairness in its pension system, with state-led management; the United States favors market mechanisms and individual choice.
The United States and China, one emphasizes investment freedom and personal responsibility, the other focuses on institutional rigidity and collective protection. Faced with the global challenge of the pension dilemma, they have proposed different solutions.
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