Honest Dollar in the Gig Economy

The headline in the Wall Street Journal yesterday read, “Goldman buys Retirement Startup“. The story went on to report how the purchase of Honest Dollar, an Austin, Texas-based financial technology firm focused on retirement plans comprised of low-cost exchange traded funds targeted at small and mid-sized companies was a purchase designed to broaden Goldman’s business into less exclusive services. It was also a play into a new distribution channel, where the emphasis is on technology.  The inference was that by purchasing this innovative financial technology company Goldman was buying entry into a hot new marketplace.

Although I can’t speak to the technology, I can speak to the innovation because Honest Dollar is one of the few financial service providers targeting gig economy clients.  Some coverage of the transaction did mention that Lyft, the on demand car hailing service, was a client.  What was not mentioned was that they were a client not just for employees but for 1099 contractors.

One aspect of working on a 1099, independent contractor (IC), basis is that you are responsible for paying your own state and federal taxes  (FICA, FUTA and income) and managing your own benefits. The latter includes saving for retirement.  Whereas traditional employees have these payments deducted from their pay, ICs need to make the effort to coordinate it all.  Many pundits have suggested that this lack of access to benefits traditionally offered to employees is reason to eliminate IC status, unionize or at least slow the increasing presence of gig economy workers.

Honest Dollar saw this marketplace complexity as an opportunity. Providing retirement plans to 1099 workers represented a whole new target that was not underserved but unserved . William Hurley, co-founder of Honest Dollar says “It’s the first retirement plan for the modern world.” 1099 contractors who work for Honest Dollar clients can have retirement savings deducted from their fee payments.  Contractors can even set it up on a smartphone.

Now with the backing of Goldman Sachs, Honest Dollar is bound to expand its offerings,  the safety net for the gig economy may be improving.

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