It’s not uncommon for us to see companies who have adopted the 401(k) plan their payroll provider offers only to later realize that their employees are paying exorbitant fees through the commissions that are baked into the costs of the investment options. Additionally, many of the companies who are vetting 401(k) providers ask us about payroll integration.  It’s a common topic.

 

We can offer some level of integration with every payroll provider ranging from full 360° integration to payroll file mapping.  And while it’s an important feature that can save your company time and money throughout the year, it certainly shouldn’t be the deciding factor in your 401(k) decision.  So is payroll integration absolutely necessary? Probably not. However, depending on the size of your company, payroll staff, and the complexity of the payroll system you are using, some level of payroll integration can be incredibly beneficial for you.  We’ve outlined some important things to consider below when analyzing the benefits of 401(k) payroll integration.
 
401(K) Payroll Integration
 
Put Your Employees First

Ultimately, as a plan sponsor and fiduciary, it’s your responsibility to act in the “Sole Interest” of your employees as you select 401(k) plan providers.  So before you select a 401(k) plan based on the level of payroll integration, you should first be considering the factors that most affect your employees’ retirement savings like fees, access to low-cost diversified investment options, advisory services, and other important plan features.  Not doing this could spell bad news if your company were to be sued by employees or audited by the DOL, IRS, or EBSA.

 

Consider the Cost

There are a lot of payroll providers out there that have their own 401(k) offerings.  Most of the time their administrative fees seem pretty reasonable and are sometimes even discounted since you are using them for payroll services as well. However, in most cases, the payroll provider is also acting as the brokerage firm for the “recommended” list of mutual funds they present to you.  Consequently, they are paid commissions from the mutual fund companies which come out of employees’ retirement savings.  Commissions typically range from .40% to 1.2% and can represent up to 80% of the investment costs employees pay.  That’s a big deal and can decrease the size of an employee’s nest egg by 20-30% over time. To find out what your integrated payroll provider is making from the plan, you should ask them the following questions:  What are your administrative fees?  Are you or a related entity also paid in revenue sharing from the investments in our plan (indirect compensation)?

 

Different Levels of Integration

There are various levels of integrations that can be built between a 401(k) provider and your payroll company. Here is brief summary of the most common integration offerings:
 

  • No Integration: A plan with no payroll integration requires you to manually enter 401(k) amounts for employees each pay period on the 401(k) website, or to manually create a report every payroll that you submit to your 401(k) recordkeeper. In some cases, you might also be manually transferring funds from your company bank account to your custodian. This can be a significant amount of work on a recurring basis and it would likely benefit you to work with your provider to receive a more integrated service or look for a similarly priced or lower-cost plan that provides some level of integration.
  •  

  • File Templates, Uploads, & Mapping: This is the first level of integration and can greatly minimize the majority of work required on a per-payroll basis. Typically, the 401(k) provider will provide you with a file template that you can upload every payroll. Instead of entering the data each time, you can simply copy the previous file, make any needed changes, and send it to your recordkeeper. This should only take a few minutes.  Usually this initiates the transfer of funds.  In some cases, you may already have a report in your payroll software that you can just export and send when you process your payroll. Some providers, like us, can often use that canned report and map the necessary fields to the recordkeeping system or help you create a custom report that works seamlessly if your payroll system allows for it.
  •  

  • 180° Integration: 180° integration is when data flows automatically one way from your payroll software to your 401(k) plan recordkeeper. The data does not however flow from your recordkeeper to your payroll software.  At BenefitGuard, we have the ability to build this type of integration with any payroll provider as long as they have the ability to automatically generate and submit us the files on your behalf when a payroll is processed. This type of integration eliminates the majority of hassle for your company as your payroll provider or software pushes the monthly 401(k) files for you.
  •  

  • 360° Integration: 360° integration is when data flows automatically both ways between the 401(k) provider (recordkeeper) and your payroll software. When you process your payroll, your 401(k) transactions push to your 401(k) provider automatically which usually initiates the transfer of funds – just like with 180°   But 360° integration goes one step further.  When an employee logs onto the 401(k) site to change their contribution %, that change is pushed from the 401(k) provider straight into your payroll system.  This level of integration is a really nice feature if you have a very large number of employees who might be changing contribution %s often.  However, these changes are usually infrequent and you or your employees are often paying significant dollars for this level of integration somewhere in your plan.

In summary, 401(k) payroll integration can be incredibly beneficial but should never be the primary factor in selecting your 401(k) provider.  Your primary obligation as a plan sponsor is to act in the “sole” interest of your employees and your plan decisions should reflect that.  If you have some sort of payroll integration, make sure you understand what you’re paying for it.  If you’re looking for payroll integration, reach out to your 401(k) provider and see what level of integration they can provide for you in conjunction with your payroll provider. If they don’t offer any integrated options at all, give us a call.  We can help.


Did you like this post? Share it:


Facebooktwittergoogle_pluslinkedinmail

Matt is the CEO of BenefitGuard. His professional passion is helping employees retire with more money in the bank. BenefitGuard does this by helping companies eliminate 401(k) fees, risk, and work unlike anyone else in the industry. Additional roles Matt enjoys: surfer, soccer coach, husband, and father of 5.

Have something to add? Select a platform and comment away!

Loading Disqus Comments ...
Loading Facebook Comments ...