Vestwell has partnerships with many of the leading payroll service providers available to small businesses today. With these partnerships, Vestwell is able to provide integrations between our recordkeeping software and their payroll software, automatically transferring important information between systems. As a result, small businesses that use these payroll integrations unlock a suite of benefits exclusive to an automated setup.
In this article, we’ll be reviewing some of the main benefits of consolidating your organization’s payroll and retirement data into a single, automatic workflow.
Administering a retirement plan requires carefully coordinating data and files from different sources, especially your company’s payroll files. With a payroll integration, recordkeepers like Vestwell receive employee information, such as compensation or hours worked, directly from a business’s payroll software. Just some of the benefits of automating these processes are:
Automatically transferring contribution and election data between your payroll and recordkeeping software significantly reduces the administrative burden put on employers who wish to offer a plan. In the absence of a payroll integration, a small business would be required to manually fill out a spreadsheet template with the required employee data and upload it to their recordkeeper. They could also download reports with the relevant data from their payroll provider and upload them to their recordkeeper for each pay period.
However, with a payroll integration, a small business no longer needs to manually transfer information between systems, saving time and minimizing the risk of errors. As a result, a company’s HR team can spend time on more productive endeavors, such as helping employees optimize their benefits from the plan.
Federal law requires all 401(k) plans to have a written plan document that governs the plan’s features and its day-to-day administration. Failure to operate the plan in compliance with that plan document can expose a business to legal liability. Some examples of this include failing to timely and properly contribute employees’ salary deferrals into the plan, failing to maintain employee records, or failing to notify participants about changes to their plan. The penalty for these violations can result in fines as high as $19,933 per incident, an unnecessary expense that can be reduced or avoided through proper payroll integration.
Unfortunately, those and other common administrative mistakes are often caused by human error. Automating as much of the plan administration process as possible can significantly reduce the easy-to-make mistakes that result in penalties. These automations can also help recordkeepers like Vestwell surface data errors quickly when they are easier and less costly to correct—sometimes without any penalty. Even better, if your retirement plan provider offers 3(16) fiduciary services, then that provider can sometimes automate many of the other administrative requirements associated with offering a plan.
Beyond the savings from reduced administrative workload, small businesses can also benefit from discounted pricing. Many small businesses operate in industries with thin profit margins. For example, according to Vestwell's partner Toast, the average profit margin for a restaurant falls in the range of 3% - 5%. The reduced price for businesses in these sectors can significantly improve the expected ROI of offering a retirement plan. These sectors may also have low employee retention rates, something research has shown can be helped by offering a retirement plan benefit.
Additionally, thanks to the recent passage of SECURE Act 2.0, small businesses can receive generous tax credits that make it practically free to start a new plan. With these credits, the cost of offering a retirement plan can be close to zero for the first three years.
The case for integrating your payroll system and retirement plan is strong. Not only can it reduce your administrative burden, but it can also reduce the cost and risk of offering a plan. Additionally, retirement plans are extremely popular among employees, meaning the benefits of a payroll integration can enhance your most important asset—your people.
Thanks to Vestwell’s integrations with many of the most valued payroll providers, we're able to automate contributions, elections, and other payroll-related transactions by feeding data directly between systems. This minimizes manual work and human error while delivering an overall more seamless experience—for 401(k)s and beyond. If you’re interested in offering a retirement plan with payroll integration, you can contact Vestwell directly to discuss your options or reach out to your payroll for a list of partners.