How payroll integration can solve one of employers' biggest challenges when administering a retirement plan.

One of the biggest issues that employers face when administering a retirement plan is submitting contributions in a timely basis. Timely deposits are a top issue looked at by the IRS in an audit.¹ Lost earning must be calculated on late deposits and failure to make timely deposits can cause both an operational mistake and a prohibited transaction.

Timely Deposits Rule

The Department of Labor (DOL) requires that employers submit contributions as soon as possible, but no later than the 15th business day of the month following when the contributions were withheld. The 15th business day is a maximum deadline and contributions truly should be deposited as soon as possible. To provide employers with a higher degree of compliance certainty, the DOL created a safe harbor rule for plans with fewer than 100 participants. If employers with less than 100 participants deposit the employee contributions within seven business days of when they were withheld, the contributions are considered on time.² Employers with more than 100 participants should deposit the contributions the earliest date on which the contributions can reasonably be segregated from the employer's general assets, often within 1-3 business days.

How Payroll Integration Helps

Payroll integration involves payroll providers automatically submitting contributions to the retirement plan on behalf of the employer. This avoids the need for the employer to manually upload a contribution file or mail a check for deposit each payroll period. Once set up properly with the payroll provider, this arrangement limits human error. It also reduces delays due to the plan administrator being out of the office or turnover at the employer.

180 Integration

180 integration is a basic level of integration. It means that the payroll provider submits the contributions to the retirement plan provider with minimal or no involvement by the employer. The employer must still notify the payroll provider of the amounts that employees want to save from their paychecks so that the proper amounts can be withheld and deposited to employee accounts.

360 Integration

360 integration is the highest level of integration. Payroll providers submit the contributions to the retirement plan provider like with 180 integration. However the flow of data is not just one way, from the payroll provider to the retirement plan provider. With 360 integration, the retirement plan provider also communicates data directly to the payroll provider. That means if your retirement plan allows online enrollment and electronic changes to salary deferral amounts, that data is transmitted directly to the payroll provider without the need for the employer to relay that information. This removes the possibility of human error and also eases administrative burdens for the employer even further.

Choosing a Payroll Provider and Retirement Plan Provider

Some payroll providers and retirement plan providers are more integration friendly than others. Certain payroll providers only integrate with a limited few retirement plan providers and others integrate with almost everyone. Payroll integration might not be enough of a reason to switch providers, however if an employer is already looking to change payroll providers or retirement plan providers, integration is something that should be considered during that process.

Summary

In the rapid pace of modern business, it is more important than ever to work efficiently. Payroll integration should be an important factor when deciding on a retirement plan provider or payroll provider. Whether it's 180 integration or 360 integration, any payroll integration can help make a retirement plan run more smoothly, avoid errors and have timely deposits.

1. https://www.asppa.org/news/auditors-perspective-401k-plan-issues
2. https://www.irs.gov/retirement-plans/401k-plan-fix-it-guide-you-have-not-timely-deposited-employee-elective-deferrals

CRN-4672761-041322