Blockchain Technology and Its Impact on Employee Benefit Plans

Blockchain technology appears to be the latest up and coming change affecting the way many industries will process transactions.  What is blockchain technology?  It is a digital ledger created to capture transactions among various parties in a network.  Blockchain technology has the potential to impact all recordkeeping processes, including the way transactions are initiated, processed, authorized, recorded and reported.  Many blockchain advocates are hopeful that these new transaction applications will help establish trust, accountability and transparency among their organization and partners.  As it relates to employee benefit plans, many experts feel there are several ways in which blockchain technology will benefit the industry.  It will have the capability to transform the overall administration and recordkeeping, link payroll with participant accounts and investment elections and allow participants to more easily transfer money from one fund to another.  One specific opportunity is the use of smart contracts for pension plans.  Smart contracts are computer code stored on the blockchain that executes actions under specific circumstances.  A pension plan is a contract with required payments at a required time.  A smart contract would be more efficient and would eliminate errors in plans where a manual process is still being utilized.  Another common proposed usage for blockchain in the retirement arena is in the exchange of documents.  Many benefit plan documents require approval and verification by several parties.  Blockchain would make it easier for all parties to review and approve documents.  Blockchain would also offer advantages related to document and data management, since it is considered to be tamper-proof, provides time-stamping and is much cheaper because it is decentralized.  The decentralization also could provide more information transparency, which could eliminate the problem of hidden fees.  While there are still many unknowns related to blockchain technology, it is one of the hottest topics and something to be monitored within your organization.