Not all perimeter shifts involve private equity. Many of today’s most common DC options—stable value, guaranteed income products, and insurance separate accounts—operate outside the mutual fund regulatory framework, while still being marketed as conservative, low‑risk solutions.
Building on our previous discussion of private markets, this post explores how insurance structures and cryptoassets reveal similar tensions between product complexity, regulatory oversight, and participant expectations.
Chapter 6: Insurance, Crypto, and the Edges of the DC Investment Menu
Insurance Separate Accounts and General Account Products
Insurance-based structures like stable value funds and guaranteed lifetime income (GLI) / group annuity products are another way DC assets move outside the familiar 1940 Act mutual fund regime into a different regulatory universe: state insurance law and ERISA.
Stable value and group annuity structures in DC plans
In most large DC plans, “stable value” is delivered through insurance company contracts, broadly falling into three buckets:
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Traditional guaranteed investment contracts (GICs).
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The plan holds a contract with an insurer that guarantees a fixed rate of return backed by the insurer’s general account.
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The insurer owns the underlying assets; participants see only a book-value crediting rate.
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Separate account contracts.
- Assets supporting the contract are held in a legally segregated separate account, distinct from the insurer’s general account.
- The contract may guarantee a rate of return or credit a rate tied to the performance of the separate account’s underlying portfolio.
- Synthetic GICs and wrapped portfolios.
- The plan (or a commingled fund) owns a portfolio of fixed income securities; one or more insurers provide “wrap” contracts that smooth returns and guarantee book-value withdrawals under specified conditions.
GLI products and in-plan annuities often piggyback on similar insurance structures:
- General account GLI - The insurer guarantees income based on its general account, with participant benefits an obligation of the insurance company.
- Separate account GLI - Income promises are supported by a separate account that may hold a mix of fixed income and other assets, with performance passed through to policyholders.
In regulatory terms, these contracts are insurance products, governed by state insurance regulation and ERISA (to the extent plan assets are involved), not by the 1940 Act mutual fund regime. Where a separate account’s performance is passed through to plans, ERISA’s fiduciary responsibility rules apply to the insurer with respect to those assets.
Protection tradeoffs vs. mutual funds
From a participant’s perspective, stable value funds and GLI options often present as “conservative,” “capital-preserving,” or “income” choices. Under the hood, the protection profile is different from a registered fund.
Credit and counterparty risk - General-account stable value and GLI benefits are promises of the insurer; they depend on the insurer’s solvency and claims-paying ability. Separate accounts can mitigate this somewhat by segregating assets, but contract terms still govern the extent of protection.
Transparency into underlying assets. Participants typically see a crediting rate and an account value, not a portfolio of observable securities or a prospectus with holdings and risk disclosures. Detailed asset-level information may be available to the plan sponsor or consultant under NDAs, but not to participants or the broader market.
Liquidity terms and restrictions. Stable value contracts often include put provisions, market value adjustments, or exit conditions if a plan freezes contributions or changes recordkeepers. Participants often experience “daily liquidity at book value,” but that liquidity is conditional on the plan remaining in good standing with the contract.
Regulatory and oversight regime. Oversight rests with state insurance departments and ERISA fiduciary rules, not the SEC’s mutual fund governance and disclosure framework.
The net effect: these products can provide valuable capital preservation and income smoothing, but they do so through a regime that is less transparent and more dependent on contractual promises than a 1940 Act bond fund.
Functional deregulation?
Stable value and GLI options illustrate a pattern similar to CITs in which participant-facing communications and statements suggest a conservative, low-volatility option, often sitting beside registered bond and money market funds, but the underlying structure is an insurance contract backed by a general or separate account, operating outside the mutual fund rulebook.
It is not that these products are unregulated; they are heavily regulated as insurance products. The concern, from an investor-protection standpoint, is that participants may believe they hold a “fund-like” conservative option, when in reality, they hold a claim on an insurer’s balance sheet or a contract with complex terms that would be difficult for a typical retail investor to fully evaluate on their own.
That dependence on intermediary fiduciaries such as plan sponsors, consultants, and insurers, rather than standardized, public product-level protections, is a hallmark of the perimeter shift.
Crypto and Digital Assets in Retirement Plans
Cryptoassets are a different, more volatile frontier, but they raise the same core question: how far can DC plans stray from traditional, regulated asset classes before investor protections become inadequate for typical participants?
DOL’s “extreme care” guidance and its rescission
In March 2022, the DOL’s Employee Benefits Security Administration (EBSA) issued Compliance Assistance Release 2022-01, titled “401(k) Plan Investments in ‘Cryptocurrencies’.”
That release warned that EBSA had become aware of firms marketing crypto investments to 401(k) plans as potential menu options and directed plan fiduciaries to exercise “extreme care” before considering adding a cryptocurrency option, citing concerns about extreme price volatility; valuation difficulties; custody and recordkeeping challenges; and susceptibility to fraud and theft. The release went further, suggesting that offering crypto could, in some cases, be inconsistent with ERISA’s duties of prudence and loyalty. Although the release did not ban crypto in 401(k)s, the “extreme care” standard had a significant chilling effect, and most sponsors and recordkeepers chose to avoid crypto options altogether.
In May 2025, EBSA issued Compliance Assistance Release 2025-01, rescinding the 2022 guidance. The agency stated that it was returning to a neutral stance on particular investment types and that fiduciaries (not regulators) should evaluate whether crypto belongs in a plan menu, under the usual ERISA prudence standard.
The rescission:
- Removed the “extreme care” language, which had no direct analog in ERISA,
- Did not endorse crypto; rather, it reiterated that fiduciaries must evaluate risks and suitability like any other asset.
Crypto as a perimeter stress test
Cryptoassets magnify many of the themes in this paper.
- Regulatory fragmentation and uncertainty - Crypto’s regulatory treatment straddles securities, commodities, banking, and payments law, with evolving standards for what constitutes a security token vs. other forms of digital assets. Investor-protection regimes are still being built; there is no settled, mutual-fund-like framework for many crypto exposures.
- Extreme volatility and valuation challenges - Crypto prices can experience double-digit percentage swings in short periods; valuations may depend on thinly traded markets on lightly regulated exchanges.
- Custody and operational risks - Safekeeping digital assets requires specialized custody arrangements, with risks around hacking, key management, and operational errors that are qualitatively different from holding stocks and bonds.
The 2022 DOL release explicitly tied these features to potentially “devastating” impacts on participants’ retirement savings if misused. Even after the 2025 rescission, those risk factors have not changed; only the regulatory messaging has. Neutrality restores discretion to fiduciaries, but it also removes a bright, cautionary signal that many sponsors relied on to justify a firm “no.”
Implications for participants and fiduciaries
In theory, crypto in retirement plans could appear in several forms as a standalone menu option (e.g., a crypto fund or trust), as an allocation within a multi-asset fund that includes digital assets as a sleeve, or through brokerage windows that allow participants to access crypto-related securities or ETPs.
In each case, the perimeter question is sharp:
- Participant comprehension - It is difficult to explain, in plain language, how crypto works, why prices move, what could cause a permanent loss of value, and how custody risks are managed.
- Suitability and risk concentration - Left unconstrained, some participants might allocate large portions of their retirement savings to crypto, attracted by past price spikes, without appreciating the downside.
- Process and documentation - Fiduciaries considering crypto must build a record that they understood and evaluated these risks, assessed fees and platform arrangements, and considered alternatives.
From the perspective of this paper’s thesis, crypto is a stress test of the system. If we allow highly speculative, lightly settled assets into DC plans at scale, relying primarily on fiduciary process and generic disclosure, we are pushing retirement savers well beyond the environment for which the historical protection architecture was designed.
Whether sponsors embrace or reject crypto, the policy arc from DOL’s 2022 “extreme care” warning to its 2025 neutral stance illustrates how quickly regulatory signals can change, even as the core challenge remains: matching complex, edge-of-perimeter assets with the realities of retail investors’ understanding and risk-bearing capacity.
Taken together, CITs, private markets, insurance products, and crypto suggest that the system is being pulled in one direction by powerful forces. The question isn’t whether innovation is happening—but why it keeps accelerating. In the next post, we’ll step back to examine the economic, regulatory, and behavioral pressures driving this shift.
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