Technology enhancements for devices and systems to connect and share information is advancing rapidly – so much so that one could make the argument we are in an “Age of Connectivity”.
Our mobile phones connect to garage door openers, light switches, home thermostats, fans, and even refrigerators. Financial websites allow us to seamlessly connect and integrate data from our savings and investment accounts to help plan our futures, and banking websites integrate with personal financial planning tools to allow us to manage finances. Most business software applications are now being developed to include robust “web services” that allow businesses to connect to other software systems for sharing critical business information. These connected systems and devices save us time and money and make our lives better.
One area where system connectivity has lagged is integration between a company’s payroll and 401(k) provider. While several national payroll vendors understood the benefits and took advantage of 401(k) integration early on, and a few other vendors have created integrated solutions, this practice has been the exception among vendors. The trend seems to be changing, however, with the emergence of a new type of payroll provider offering modern payroll software platforms and an “open architecture” approach. Several of these companies have seen significant growth over the past 5 years, and a few have grown into large, publicly-traded companies. Unlike some of the national providers with proprietary, closed integration solutions, these new payroll providers realize the value of a company’s payroll data and offer software and business models that help companies leverage payroll data and encourage integration with other systems and vendors.
Because of the emergence of open architecture payroll vendors, it seems timely to review some of the benefits of having payroll and 401(k) integrated.
With an integrated solution, weekly contribution and loan data and year-end census files are automatically generated and transmitted to the 401(k) provider, saving company personnel time. In addition, employee contribution elections and new loan requests are managed via the plan website and transmitted to the payroll system eliminating the need to manually enter elections.
Because census data is provided automatically, the plan provider can prepare year-end plan reports and tax forms faster. Other plan transactions, including distributions and loans, can also be processed faster since up-to-date participant data is readily available to the 401(k) provider.
When data is exchanged with the 401(k) system, it reduces the likelihood of errors. Contributions are transmitted to the plan faster reducing the possibility of penalties and interest for failure to remit contributions to the plan timely.
An integrated solution can save the 401(k) provider time processing transactions and following up on missing plan information which may result in lower plan service fees.
When the 401(k) recordkeeper has immediate access to current employee data, the plan website can electronically process transactions without processor intervention, resulting in a better overall experience for participants and company personnel.
An integrated solution may result in better retirement outcomes as contributions are invested in the market faster and participants have a better overall experience with the plan, increasing the likelihood of strong participation.
In summary, a company whose 401(k) provider is integrated with their payroll vendor will save time, reduce costs, and improve outcomes. With the acceleration of connected systems and vendors and the emergence of a new breed of payroll vendor, it’s becoming easier and easier to find quality integrated 401(k) solutions. If you work with 401(k) plans, now may be a good time to review integration options.