I. Introduction — From “Gateway Drugs” to Hidden Crypto Exposure

Trump-era executive orders have again opened the 401(k) casino. Just as fixed and variable annuities were sold into plans under the false pretense of a DOL “safe harbor,” crypto now follows the same playbook—masked behind Target-Date Funds (TDFs) wrapped in State-regulated Collective Investment Trusts (CITs). These opaque, bank-trust vehicles avoid SEC registration and ERISA’s disclosure regime, giving Wall Street a new place to hide high-fee, high-risk bets.

II. How Crypto Becomes a Prohibited Transaction

Under ERISA §406(a)(1)(C) & (D), a plan engages in a prohibited transaction if a fiduciary causes the plan to furnish services or assets to, or engage in any transaction with, a party-in-interest— including the recordkeeper, trustee, or any affiliate. Once crypto exposure is embedded in a TDF or brokerage window managed by a plan’s own service provider, several triggers appear, including affiliate conflicts, spread profits, hidden placement within Target-Date CITs, and lack of a viable PTE.

III. The Valastro Framework — Fiduciary Void Meets Regulatory Capture

Valastro describes a “regulatory void” surrounding crypto in 401(k)s and a Trump administration “all-in on cryptocurrencies.” Her forthcoming analytical framework would extend fiduciary prudence standards to brokerage windows—precisely where crypto is now being funneled. Yet absent DOL enforcement, plan sponsors inherit full fiduciary liability when participants lose savings.

IV. Parallels to the Fixed-Annuity “Get-Out-of-Jail-Free Card”

As detailed in Trump’s Executive Order Is Not a Get-Out-of-Jail-Free Card (Aug 2025), insurers long claimed that any product blessed by State regulators or a DOL exemption is automatically ERISA-compliant. Crypto promoters now borrow that script—arguing that Executive Order 14330 “democratizes alternatives.” In reality, it merely shifts risk from issuers to participants while removing federal oversight.

V. Accounting Chaos — “Four Sets of Books” in Digital Form

In Four Sets of Books (Aug 2025) I showed how plan sponsors, insurers, and consultants each maintain separate ledgers—obscuring true returns. The same structure applies to crypto: Blockchain ledgers record token flows; custodians maintain off-chain balances; recordkeepers report synthetic daily values; and trustees book nominal “unit values.”

VI. Target-Date CITs as the Hidden Vector

Crypto exposure will likely surface inside default TDFs, buried within State-regulated CITs. Because participants rarely opt out of defaults, millions could be involuntarily exposed to crypto volatility—without prospectus, SEC registration, or clear ERISA bonding. That alone establishes both fiduciary imprudence and self-dealing.

VII. Fiduciary Implications and Enforcement Roadmap

The DOL retains power under §406 to challenge crypto inclusion as an imprudent plan investment. Plaintiffs can also plead that fiduciaries knowingly allowed party-in-interest transactions lacking valid exemptions.

VIII. Conclusion — Crypto as the Next ERISA Time Bomb

Crypto in retirement plans repeats every structural flaw of the annuity and private-equity experiments: opacity, conflicted service providers, and regulatory arbitrage. Valastro’s “Retirement Roulette” metaphor captures it perfectly—plan sponsors have turned workers’ savings into a spin of the digital wheel.

Add-On: Crypto in Brokerage Windows Is Still a Prohibited Transaction

I. Brokerage Windows—The Illusion of Fiduciary Escape

Professor Lauren K. Valastro’s Regulating Retirement Savings Roulette makes clear that the so-called self-directed brokerage window (SDBA) is no regulatory safe zone. She writes that “no agency or court has confirmed the existence of fiduciary duties relating to brokerage windows,” yet those windows are now the primary mechanism through which crypto enters 401(k)s. By allowing virtually unrestricted trading access inside an ERISA plan, sponsors and recordkeepers pretend that fiduciary obligations stop at the menu—but ERISA never permits abdication.

II. The Fidelity Crypto Pay-to-Play Model

Fidelity reportedly accepted hundreds of millions of dollars from crypto issuers and exchanges to gain shelf space on its brokerage-window platform. Such arrangements are indistinguishable from mutual-fund revenue-sharing schemes that courts have already deemed transactions for consideration with a party-in-interest. When a recordkeeper or trust platform receives direct or indirect compensation from a product provider whose assets are sold through the plan—even via SDBA—§406(a)(1)(C) and (D) apply.

III. Benchmarking Impossible = Fiduciary Imprudence

As Commonsense 401(k) reported in November 2024, crypto, private equity, and annuity contracts are impossible to benchmark. If a fiduciary cannot verify pricing, fees, or fair value, prudence and loyalty are violated. Valastro confirms this opacity “portends both increased costs and potential losses without legal safeguards.”

IV. Brokerage Windows Exposed by Crypto

In Commonsense 401(k)’s June 2022 piece “#401k Brokerage Windows Exposed by #Crypto,” it was predicted that open-architecture rhetoric would conceal profit-sharing deals. Crypto has turned SDBAs into fee-generating casinos, where recordkeepers win regardless of participant losses.

V. Why “Participant Choice” Doesn’t Cure a Prohibited Transaction

ERISA’s fiduciary duties run to the plan itself—not whichever participant clicks “buy.” Offering a conflicted feature is a breach. Valastro’s proposed framework—extending fiduciary review to brokerage-window design—confirms that participant direction is not a magic shield.

VI. Conclusion—The Hidden “Fifth Book”

Brokerage windows create a fifth set of books: unreported payments for platform access. In the crypto context, these off-balance-sheet incentives complete the circle of self-dealing. Whether crypto sits in a Target-Date CIT or a brokerage window, the result is identical under ERISA—an unbenchmarkable, conflicted, and inherently prohibited transaction.

Lauren K. Valastro, “Regulating Retirement Savings Roulette,” 63 San Diego L. Rev. (2026 forthcoming)

Appendix: Senator Warren’s 2026 Warning and the Emerging Risk of “Hidden Crypto” Inside CITs

Why this appendix matters

Since the publication of Crypto as a Prohibited Transaction in 401(k) Plans, the legal and regulatory landscape has deteriorated in precisely the direction fiduciaries should fear. Rather than strengthening ERISA protections, federal policy signals now point toward expanded access to crypto assets in retirement plans, coupled with weaker transparency and oversight.

Sen. Elizabeth Warren’s January 12, 2026 letter to the SEC crystallizes these risks and provides a contemporaneous record that fiduciaries were placed on explicit notice of crypto’s volatility, opacity, and conflicts — an important fact for both enforcement actions and ERISA litigation. https://www.banking.senate.gov/newsroom/minority/ahead-of-committee-markup-warren-calls-for-answers-on-secs-crypto-regulation-following-president-trumps-executive-order-putting-americans-retirement-at-risk

WarrenJan26lettertoseconcryptov…

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1. Senator Warren places fiduciaries on formal notice

In her January 2026 letter, Sen. Warren warned that allowing crypto assets into retirement plans “endangers investors” due to:

• Extreme volatility
• Lack of transparent valuation
• Absence of reliable methods to project future returns
• Weak or nonexistent investor protections
• Conflicts of interest at the highest political and industry levels

The letter explicitly references:

• A 33% Bitcoin decline in six weeks, wiping out nearly $800 billion in market value
• GAO findings that crypto assets have “uniquely high volatility” and no standard valuation framework
• The Trump Administration’s Executive Order directing agencies to re-interpret ERISA’s definition of permissible plan assets to accommodate crypto

WarrenJan26lettertoseconcryptov…

For ERISA purposes, this letter matters because it eliminates any argument that fiduciaries lacked knowledge of crypto’s risks. After January 2026, ignorance is no defense.

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2. The Executive Order accelerates prohibited-transaction risk

The August 2025 Executive Order cited by Sen. Warren directs DOL and the SEC to “reevaluate” ERISA guidance to permit alternative assets — including crypto — in 401(k) plans.

This directive does not create a statutory exemption under ERISA §406. Instead, it creates pressure on regulators to relax enforcement, shifting the burden to private litigants.

Critically:

• An Executive Order cannot override ERISA’s prohibited-transaction statute
• Any crypto exposure involving related parties, indirect compensation, revenue sharing, or affiliated service providers remains presumptively unlawful
• Fiduciaries remain personally liable for prohibited transactions, regardless of political signals

This mirrors earlier regulatory failures involving annuities, proprietary funds, and private equity — all of which later became major litigation waves.

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3. The next frontier: Crypto concealed inside CITs

Public debate has largely focused on direct crypto options and brokerage windows. That focus misses the more dangerous development: crypto exposure embedded inside Collective Investment Trusts (CITs), particularly in target-date CITs.

CITs present a uniquely dangerous combination:

• No SEC registration
• Limited public disclosure
• No prospectus
• Opaque valuation methodologies
• Broad latitude to hold derivatives, tokens, or blockchain-linked instruments

As documented in your December 2025 analysis of target-date CIT corruption, CIT structures allow asset managers to bury high-risk exposures several layers down, beyond participant visibility and often beyond sponsor understanding.

Crypto exposure can enter CITs through:

• Tokenized “private credit” instruments
• Blockchain-based derivatives
• Crypto-linked notes
• Offshore vehicles held by the trust
• “Alternative sleeve” allocations inside target-date CITs

Participants may never see the word “crypto” — yet still bear its full volatility.

Wall Street Journal Exposes Target Date CIT Corruption — Opens up Fiduciary Litigation

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4. Why hidden crypto in CITs is an ERISA violation

Embedding crypto inside CITs triggers multiple ERISA violations simultaneously:

A. Prohibited transactions (§406(a) and §406(b))
If the CIT manager or affiliate:

• Sponsors the trust
• Serves as recordkeeper or adviser
• Receives indirect compensation tied to assets

…then crypto exposure inside the CIT constitutes a per se prohibited transaction, regardless of performance.

B. Failure of disclosure
ERISA requires fiduciaries to understand and disclose material risks. Crypto exposure hidden inside a CIT:

• Defeats meaningful participant disclosure
• Prevents informed consent
• Violates fiduciary duty even absent losses

C. Imprudent concentration of uncompensated risk
Crypto introduces:

• Extreme volatility
• Correlated drawdowns
• Valuation gaps
• Liquidity mismatches

When embedded in a default investment (QDIA), these risks are imposed on participants without choice — a direct violation of ERISA’s core protective purpose.

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5. Senator Warren’s letter strengthens future litigation

For plaintiff attorneys, Sen. Warren’s letter is not merely political commentary. It is evidence:

• Evidence that crypto risk was well-documented
• Evidence that volatility and valuation problems were widely known
• Evidence that fiduciaries were warned before allowing crypto exposure

Courts have repeatedly held that fiduciary breach claims are strengthened when defendants ignored contemporaneous warnings from regulators, legislators, or oversight bodies.

This letter will be cited in:

• Motions opposing dismissal
• Discovery disputes
• Expert reports
• Trial records

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6. The broader pattern: Regulatory retreat, litigation advance

Crypto follows a familiar pattern:

1. Regulators signal permissiveness
2. Industry exploits structural loopholes
3. Risks are hidden, not eliminated
4. Losses materialize
5. Litigation becomes the primary enforcement mechanism

CITs are the perfect vehicle for Step 3.

Fiduciaries who believe crypto exposure is “allowed” because it is indirect, pooled, or rebranded are repeating the same errors made with:

• Proprietary mutual funds
• General account annuities
• Private equity in target-date funds

Those errors proved costly.

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Conclusion

Sen. Warren’s January 2026 letter removes all ambiguity. Crypto is volatile, opaque, and unsuitable for retirement plans — particularly when concealed inside nontransparent structures like CITs.

Fiduciaries who permit crypto exposure — directly or indirectly — now do so with full notice of the risk and full exposure to ERISA liability.

For regulators, this appendix is a warning.
For fiduciaries, it is a last chance.
For plaintiff attorneys, it is a roadmap.

Trump’s Crypto and Private Equity in 401k push – enabled by the Gateway Drug -Annuities

Trump’s Executive Order Is Not a “Get Out of Jail Free Card” for 401(k) Plan Sponsors – Fixed Annuity Example

Crypto is ERISA Prohibited Transaction – ChatGPT – do not use in 401(k)

Crypto, Private Equity, Annuity Contracts Are Impossible to Benchmark

Brokerage Windows Exposed by Crypto