1 There’s an ecosystem of approaches for you and your clients to leverage
Although every situation is unique, 401(k) plan sponsors tend to fall into one of three categories when it comes to integrating participant contribution handling into their larger payroll operation. These categories include:
- Clients who prefer to manage the entire process in-house—either because they’re a very small business or they’re larger and simply prefer to handle their own internal payroll operation
- Clients who want to stay partly involved—but are willing to let a payroll vendor shoulder part of the load
- Clients who’d rather outsource most of the work
In response, the retirement industry has come up with three corresponding payroll integration models, as outlined below.
|Payroll option||For 401(k) clients who …||How it works|
|Self-managed payroll integration||Prefer to manage and submit 401(k) contributions in-house—whether or not there’s a payroll vendor in place||Client payroll staff handles the entire file maintenance and contribution remittance process using tools provided by the recordkeeper—typically, through their plan sponsor website|
|180° payroll||Prefer to outsource some of their 401(k) contribution processes
||The payroll vendor automatically generates and submits the necessary payroll and data files to the 401(k) recordkeeper, while the client payroll staff manages the rest of the process in-house|
|360° payroll||Prefer to outsource a bigger share of their 401(k) contritibution processes||The most advanced outsourcing option, 360° payroll lets clients delegate the creation and submission of each period’s contribution file—and the ongoing upkeep of contribution payroll data—to their payroll vendor and recordkeeper, working in concert|
The first of these models, self-managed payroll integration, is a one-on-one venture between the client and the recordkeeper; it involves using online tools, recommended processes, and access to the recordkeeper’s support team to make 401(k) contribution handling as efficient as possible for the in-house payroll staff.
As you move into partial or comprehensive outsourcing, the 180° and 360° solutions’ new partner—the payroll vendor—also takes the stage. Obviously, the recordkeeper and payroll vendor need to have compatible systems and the ability to work together seamlessly. Provider partnerships are common and can save you the trouble of piecing solutions together.
Finally, it’s important to keep in mind that 401(K) payroll integration is a data business. You’ll want to be sure that any recordkeeper you recommend is impeccable in supplying timely transaction and status data to the client’s payroll staff or vendor—and in the formats that are useful to them.
2 Discussions about payroll issues can help win over some influential decision makers
When a consultation focuses on payroll processing, you enter the realm of finance and human resources specialists. Given the makeup of most retirement plan committees, this can be a very advantageous place to be.
Which part of a business is most interested in payroll issues?
For nearly 75% organizations, payroll reports to finance or HR
Source: "Deloitte Global Payroll Benchmarking Survey,” Deloitte Development LLC, 2020.
It all starts with consulting around a few pointed questions:
- If we upgraded the tools and support available to your payroll staff, would continuing your self-managed approach still be a good fit for you—at least for now?
- Is limited payroll staff capacity a substantial issue—and is it important to avoid making it worse?
- If there’s a payroll vendor in place, is it capable of offering more support when you factor in capabilities and cost?
- Looking to the future, are there changes to payroll processes or suppliers in the works that should be factored in up front?
Spending some time discussing issues such as these shows key decision makers that you’re engaged. Also, easing the burden of a finance or HR director’s payroll staff—well, that can help you win your firm some valuable supporters.
3 Getting 401(k) contributions right is a fiduciary duty—and evidence of a high-integrity sales and service approach
Late or inaccurate submissions of participants’ 401(k) contributions can trigger IRS-imposed penalties that range from reimbursement of lost interest earnings to plan disqualification. Of course, you want to help your clients steer clear of such trouble.
However, that’s just one benefit of helping clients implement the right payroll solution.
Besides making their plan easier to administer in measurable ways, you’ll reinforce that there’s no detail you’ll overlook in helping clients and their participants derive more value from their retirement plan.
The content of this document is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made herein.
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