Blockchain Technology for Retirement Could Reduce Leakage
Blockchain technology for retirement plans could help America’s workers save more for retirement.
So says a new article in Forbes, penned by Adam Bergman, President of IRA Financial Group and IRA Financial Trust Company, which provides self-directed retirement plans. Blockchain technology for retirement plans has far-reaching implications for the 401k participants.
To understand how blockchain technology for retirement impacts 401k participants one first must comprehend, “exactly, what is blockchain? According to Mr. Bergman, “… a blockchain is an online ledger that contains any and all transactions that occur there. Blockchain technology is generally referred to as “decentralized” since it’s not backed by one central, governing body. Instead, anyone can access the blockchain to check the authenticity of a transaction. Further, since blockchain relies on cryptography, there’s no way to amend a transaction once the transaction becomes embedded as part of the ledger. In other words, blockchain could be thought of as an advanced Excel datasheet that is decentralized, accurate and secure.”
How does blockchain technology for retirement apply to the U.S. retirement system? Currently, Americans are largely on their own when it comes to moving their retirement savings from one employer to another. Currently, there is no central database keeping tabs on participants’ retirement accounts. There’s also no single system that enables workers to roll their retirement plan from one employer’s plan to another when they change jobs. Consequently, many retirement accounts are abandoned when workers switch jobs, and participants can also forget about the left-behind funds. Due to this widespread plan leakage, according to a 2017 NBC News report cited by Mr. Bergman in his article, $2 trillion in 401(k) savings could be lost when Americans change jobs.
Employers can help mitigate this by rolling former employee balances of less than $5,000 to a safe harbor IRA. However, many of these account holders can’t be identified, which means the likelihood of them ever receiving the money is slim.
However, blockchain technology for retirement could change all of that. It could be part of a solution that keeps track of all Americans’ retirement accounts — including former employer 401(k) plan accounts and IRAs — in a way that’s secure, transparent, and easily accessible. According to Mr. Bergman, advantages of using blockchain to track retirement accounts are many: “No longer would Americans lose track of where all their retirement accounts were being held. American workers would have a clearer picture of all their retirement assets and would likely be able to make wiser saving and investment decisions. In addition, individuals over the required minimum distribution (RMD) age would have an easier time determining the RMD amount due for the year in question, based on the aggregate value of all their 401(k) plans and IRAs.”
There are some hurdles to widespread adoption of blockchain technology for retirement plans. For starters, it would need to be adopted by all participants. A blockchain that isn’t being used by the top three retirement plan providers, for example, would render it “incomplete and ineffective,” Mr. Bergman noted. It would also require the IRS to make participation in the blockchain mandatory for all retirement account custodians and administrators — not an easy task.
The positive impacts of blockchain technology on Americans’ retirement savings are obvious. The implementation of blockchain technology for retirement across the industry is less so.
Steff C. Chalk is Executive Director of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education. Steff also serves as Executive Director of The Plan Sponsor University and is current faculty of The Retirement Adviser University.