Retirement plans can be difficult to understand, and even harder to administer. Industry insiders throw around jargon, especially as it relates to a plan’s ability to integrate with your payroll provider, and all these terms can be confusing. What do they mean? Are they bringing any actual value to a retirement plan?
Let’s define the terms and explain why they are relevant, so we can set your plan up for success.
Term 1: 180 or 360
These numbers refer to the information that would be flowing between your payroll provider and your retirement plan provider. Think of a circle when you hear these terms. Just like 180° is halfway around a circle, a 180 integration does half of the communication.
A 401(k) provider needs census information (i.e., name, birth date, hire date, contact information) in order to track eligibility for your employees. It also needs payroll information (wages, hours worked, retirement plan deductions) to determine if deductions were withheld and the amount. If automatic communication flows only from the payroll provider to the retirement plan provider, it is referred to as a 180 integration.
A 360 integration encompasses the same items listed in the 180 integration, with the addition of information shared from retirement back to payroll. Your retirement provider will track all those who enrolled into the retirement plan and what percentage or dollar amount they selected. This information would be sent back to your payroll provider so they can update their system to include (or remove) retirement deductions at payroll. Retirement plan loans might also be included in this information but it would require some additional coordination.
Term 2: SFTP or API
SFTP and API are the technical mechanisms for sharing information between your recordkeeper and your payroll provider. The type of technology used can affect how much time your team will spend managing retirement issues each payroll period.
SFTP stands for Secure File Transfer Protocol. In simple terms, this is a secure (encrypted) file that is sent over the internet. Your payroll provider will most likely send a spreadsheet every time the census is updated or payroll is run. If a 360 integration is in place, then the recordkeeper is most likely sending a spreadsheet to the payroll company with details of employee deductions (and possibly loan repayment information) for your payroll provider to update on the upcoming payroll.
Importantly, this file transfer usually must be initiated by a human. Sometimes it can be automated by setting information to download and send at specific set times.
API Stands for Application Programming Interface and it allows for software systems to communicate directly with each other. It essentially sends the same information that SFTP files would send, but it does so automatically through the software with no need for spreadsheets. An API integration lets data flow in real time between the two providers, eliminating the human error and lag time that are created when information is only exchanged at scheduled intervals.
You may come across the term “operationally supported integration.” This is a manual integration, meaning that an individual will be logging into your payroll system and manually pulling census and payroll data and updating deductions on your behalf. Although it is often referred to as an integration, it is not an actual integration but rather a service. It can be a useful service when a technical integration is not available, but it’s smart to understand the difference.
How to Make Integration Decisions
Given the options listed above, not all providers can accommodate each scenario. When talking through integration options with your payroll or retirement plan provider note that it may not be required that you use their integrated solution.
Most recordkeepers will let you manually update employee census and payroll details directly into their websites. This option might be beneficial for those who have a full time staff member(s) that takes on these tasks themselves or prefers to maintain a close watch. This individual(s) is solely responsible for updating their payroll to reflect enrolled participants, changed deductions, and setting up loan repayment amounts. They are also responsible for any changes on the census like termination or employee classification, identifying ownership and highly paid individuals or officers.
However, these administrative tasks can become overwhelming to those who might not be familiar with these types of responsibilities or if they already have a full plate of duties already. Furthermore, it might be uncomfortable for employees to have access to other employees’ financial details. If employees are sensitive to who might know that they are, for example, requesting a loan or stopping deferrals due to financial reasons, having an automated integration is a good solution. Moreover, if you have a highly paid individual or owner, they may want to be more discrete in maximizing their retirement benefits as well.
Automating tasks helps to lighten the load of additional administration work while helping to reduce or eliminate human error that could be costly when talking about corrective actions to a list of possible plan failures.
No two retirement plans are the same and neither are their integrations. What is good for one plan administrator may hold little to no value to another. It is up to you to decide what option would work best for your unique circumstances. Happy retirement saving!
