2) is how most 401k's work already. e.g. Fidelity has target date funds, and everyone in the 2050 target date funds has their money in one pool which Fidelity

2) is how most 401k's work already. e.g. Fidelity has target date funds, and everyone in the 2050 target date funds has their money in one pool which Fidelity manages as a group. There are 401k's that allow investing in individual securities (or so I'm given to understand) but that's not the norm.